regional supplier networks and competitive advantage
TRANSCRIPT
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Regional Supplier Networks and Competitive Advantage–
Case Studies of Honda and Vietnamese Motorcycle Companies –
Pham Truong HoangGraduate School of Information and Environment Sciences –
Yokohama National UniversityJVEC Workshop – 11/22/2003
(Draft)
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Background and Motive for Study
Japanese style supplier system’s competitive advantage
Japanese direct investment in Vietnam Vietnam condition- near China, in
ASEAN Vietnamese motorcycle industry in
recent years
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Contents Introduction Key concepts and frameworks Review of Motorcycle industry in
Vietnam and East-Asian region Regional supplier system – Case of
Honda Vietnam Company Product architecture and component’s
supplier system – Cases of Honda and Vietnamese motorcycle companies
Conclusion
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1. Key Concepts and Frameworks(1) Supplier system Production cost & transaction cost:
Production cost: cost of input Transaction cost: cost to sustain
“asset specific” – (1)search cost, (2)contracting cost, (3)monitoring cost, (4)enforcement cost
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(2) Business architecture
Product architecture Product architecture: function-component’s
scheme Interface: components’ connection rule
Closed vs. Opened Closed: rule of interface designed by one firm Opened: interface is standardized in the industry
Modular vs. Integral Modular: one-to-one mapping Integral: complex mapping (non one-to-one)
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(3)Japanese style supplier system
High performance, competitive
Transferable to other countries
Exploiting transaction cost economy
Features: Long-term relation Specialization Pyramid structure Inside competition Group integration R&D concentration Information
exchange
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(4) Performance of supplier system
Short-term: Cost: low input cost Delivery: fast and accurate (JIT)
Long-term Quality: stable in physical feature Flexibility: fast in self-changing Design: fast in R&D
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2. Review of Motorcycle Industry in Vietnam and in East Asian region
Motorcycle industry in Vietnam Development, Consumer market,
Competitors, Domestic suppliers Motorcycle industry in East Asian
region Overviews, Chinese motorcycle
industry, Thailand’s motorcycle industry
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Motorcycles being granted circulating license
2770 2806 2846 2901 3275 36784209
48275206.1285549.2676387.207
8359.042
10273.659
36.4 40 55.2 374 286.2 403.3 531 618 379.128343.139837.939
1971.8351914.617
0
2000
4000
6000
8000
10000
12000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002 Year
Thousand units
Motorcyclein the wholecountry
Number inincreasingcomparewith pastyear
Motorcycle industry in Vietnam
Source: Ministry of Police quoted by NEU-JICA project 2002
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Household Income 1999
01000200030004000500060007000
* * up100
* Up200
* 300 * * * * *Income in USD/month
Number ofHousehold(thousand)
Household Revenue in 2001
0100020003000400050006000
* * up100
* Up200
* 300 * * * * *Revenue in USD/month
Number ofHousehold(thousand)
RURALURBAN
1.Rapid development:(1)Income
increased(2)Price reduced
2.Striking development of low price segment
3.Largest segment: low price market
Consumer market
Source: Department of Statistics and author’s investigation
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Competitors, Market share, suppliers
Figure 2.5 :Market share by producers85.1%
12.3%19.6%
30.9%
74.7%
40.4%
68.4%
13.4%
0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%
Year
HVN shareImport Honda shareTotal Honda shareVMEP shareSuzuki VN shareYamaha shareOthers shareChinese m.c share
7 foreign invested, 45 domestic assemblers
Market share: fluctuating
Suppliers- more than 550 classified in three kinds: In Japanese keiretsu
ones Widely supplying foreign
invested ones Domestic ones
Source: Ministry of Police and author’s investigation
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@
Force
Piaggo
Vietnamese Motorcycle Market’s Segments and Positioning in 2002
Jupiter ($1600)Sirius ($1400)
Chinese parts product($500)
Dream Model Wave Model
Magic,star $1250
Sanda$850
$ 3,000
$ 1,300
$1,000
$700
Wave Alpha ($730)
Spacy
Supper Dream ($1330)
Dream II
Traditional Fashion Model
Dream Model
$ 6,000
Future $1660
Viva ($1500) Best ($1300)
Angel $850
$ 4,000
Chinese parts product ($500)
Source: Author’s editing based on expert’s measures and market data
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Chinese motorcycle industry Striking development: Price cutting “Copy and
ameliorate” strategy Modularization
0
2000
4000
6000
8000
10000
12000
14000
Thousand units
1980 1983 1986 1989 1992 1995 1998 2001Year
Table :Motorcycles Production in China
Motorcycle industry in East Asian region
Source: Honda's "World motorcycle facts and Figures 2001"
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Thailand’s motorcycle industry
From 1960s Market share:
Japanese makers-98% Honda-70%
Localization: 100% Closed-integral
business architecture
Table ..: Motorcycle production and sales in Thailand
0200400600800
1,0001,2001,4001,6001,800
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Year
Thousand Units
ProductionSales
Source: Honda's "World motorcycle facts and Figures 2001"
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Summary Vietnamese motorcycle industry:
Striking development Increasing competition Low price segment enlargement Chinese component’s role
East-Asian regional motorcycle industry Striking development Chinese motorcycle industry modularization Low price of components
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Hypothesis (1) Change in Vietnamese market Decline of Honda in Vietnam before 2002 Development and modularization in regional
motorcycle industry Transferability of Japanese style suppliers system Advantage of Japanese style supplier system
(1) Honda in Vietnam enlarged its supplier system to regional supplier network
(2) Change of suppliers is in some components
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Hypothesis (2) Modularizing in Japanese automobile industry Modularization in regional motorcycle industry Modularization in components Outsourcing and modularization’s relation Dynamics of product architecture
(3) Honda in Vietnam is modularizing partly and based on components
(4) Modularization in Vietnamese motorcycle companies and product architecture is changing dynamically
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3. Regional supplier system in Honda Vietnam Company (HVN)
Company background:
Joint-venture : Honda 70% Establishment: 1997 Capital: 104 million US$ Location: Vinh phuc, 40 km
from Hanoi Products: Super Dream
(1998), Future (1999), Wave Alpha (2002)
Labor: 2000 persons
0
50
100
150
200
250
300
350
400
Thousand units
1998 1999 2000 2001 2002 Year
Figure 3. Production of HVN
Super Dream
Future
Wave Alpha
HVN total
Source: Ministry of Police. Ministry of Trade
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Wave Alpha product Launch: 2002 Price:
2002-730US$;2003-850 US$
Sales: 2002: 315.000 H1/2003: 158.000 (82%
HVN’s sales) Successful development
Low price Good design Good quality
The role of supplier system
Figure 3. :Market share of Honda's different products
16%
28%19%
8%
31%
66%
12%20%
31%
19%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1997 1998 1999 2000 2001 2002 H1/2003 Year
Super Dream
Future
Wave Alpha
Import Honda
HVN total
Total Honda share
Source: Ministry of Police, Ministry of trade and author’s
investigation
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HVN supplier system- cross product analysis -
Supplier system of Super Dream
Honda Vietnam
Honda Asian (Thailand)
Supplier system of Wave AlphaHonda
Vietnam
Asian Honda (Thailand)
Sundori Honda (China)
First tier suppliers
Second tier suppliers Source: Author’s investigation
Japanese traditional style supplier system
New style supplier system of HVN
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HVN supplier system changesand component classification HVN supplier system’s change:
(1) Increase domestic suppliers (2) Increase first tier: domestic ones, non-core
parts(3) Shift to Chinese suppliers(4) Concentrate on price(5) Increase second and third-tier suppliers
Component’s classification: Core components - Honda’s specific parts Non-core components – Honda’s none-specific
parts
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Performance of new supplier system in HVN
Main characteristics of new supplier system in HVN C D Q F Ds Notes
(1) Increase domestic suppliers, shift from some Thailand’s suppliers to Vietnamese one (mainly non-core components)
+ + (-) (-) (-)*Weak impact because components are non-core
(2) Increase first tier but most of new first-tiers are domestic ones with non-core components
+ + (-) (-) (-)
(C- cost, D- delivery, Q- quality, F- flexibility, Ds- Design+: positive impact, -: negative impact, x: unidentified impact, (): weak impact)
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(Cont.)Main characteristics of new
supplier system in HVN C D Q F Ds Notes
(3) Shift from some Thailand’s suppliers to Chinese ones:-With core components-With non-core components
++
(+)**(+)**
-(-)*
-(-)*
-(-)*
* With the development of production in China, negative impact are weak**Including some “-” impacts
(4) Take price is one of the decisive factor
+ + - - -
(5) Increase second and third suppliers
+ + - - x
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Performance in summaryCharacteristics C D Q F Ds
(1) + + (-) (-) (-)
(2) + + (-) (-) (-)
(3) ++
(+)(+)
-(-)
-(-)
-(-)
(4) + + - - -
(5) + + - - x
(C- cost, D- delivery, Q- quality, F- flexibility, Ds- Design+: positive impact, -: negative impact, x: unidentified impact, (): weak impact)
Source: Author’s investigation by interviews carried in July and August 2003
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Supplier system of core-components Honda keiretsu in
East Asia: Engine’s
component: suppliers in Japan (and some parts from Thailand)
Transmission’s component: suppliers in East Asia
Supplier systems of core-components
C D Q F Ds
Sustain suppliers in Honda keiretsu for most of core-components
- - + + +
Source: Author’s investigation by interviews carried in July and August 2003
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Supplier system in HVN- from performance analysis -
New supplier system: Supports short term performances: Cost,
Delivery Harms long-term performances: Quality,
Flexibilities, Design New supplier system for non-core
components Traditional supplier system for core
components
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Reasons for developing regional supplier system Regional condition:
Chinese motorcycle industry and modularization
Vietnamese motorcycle industry: High development Market (low price segment) enlargement
Regional strategy of Honda East Asia regional specialization
Institutional factors: Policy of localization
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Summary Regional supplier network in HVN
Component’s characteristics based Opened regional system for non-core parts In keiretsu regional system for core parts Focusing on cost and delivery, on short-term
production cost Reasons for new network: Industry’s condition,
MNCs regional strategy, institutional factors(Hypotheses (1), (2) are supported)
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4. Product architecture and component’s supplier system – Cases of Honda and Vietnamese motorcycle companies-
Case study of HVN Flexible component’s supplier
systems: Core components:
In-the-keiretsu suppliers Non-core components
Out-of-keiretsu Vietnamese suppliers Out-of-keiretsu Chinese suppliers
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Cont. In-the-system relation:
Closed relation Integral system Supplier changing insid
e system Enlarging the system
Product architectureClosed-integral
Product architectureIntegral Modular
Closed
Opened
Hypothesis (3) is not supported
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Cases of Vietnamese domestic companies Company A
Increasing in-house production Company B
Moving to closer relationship in system Company C
Keeping open supplier system Company D
Moving to component manufacturing
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Cont. Entered market by
wholly opened-modular
Market-based relationship
New changes: Increase close relation Apply in some parts
with some suppliers
Integral Modular
Closed
Opened
Product architecture
Source: Author’s investigation by interviews carried in July and August
2003
A B
C
Hypothesis (4) is supported
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4.3. Summary - Dynamics of product architecture in Vietnam Motorcycle industry-
HVN sustains closed-integral architecture in larger and regional supplier network
Vietnamese companies:
Move to closer relation with more closed product architecture
Sustain opened-modular architecture
Dynamics in product architecture:
HVNVietnamese onesNew architecture
Integral Modular
Closed
Opened
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5. Conclusion & Discussion Conclusion:
Regional supplier network in China-Asean region Mixing and flexible component’s supplier systems Dynamics of product architecture in components,
companies Discussion:
Change of Japanese style supplier system Modularization and component’s supplier system Flexibility of transaction cost & production cost