The Alliance Between Honda and Rover

Introduction

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

Background

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. The company’s products were notorious for the poor quality and reliability and the facilities were operated far below the capacity. Therefore, finding a partner from other countries seemed to be a quick and effective solution considering avoiding the direct competition. In addition, in order not to be left as an assembler for the big player, Honda could be a suitable partner.

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.