Why Honda and Rover Used the External Method of Growth and How Did They Both Benefit from It?

Examine the reasons why Honda and Rover used the external method of Growth and how did they both benefit from it?

• Define external Growth:

 Rely on establishing relationships with third parties, such as mergers, acquisitions, strategic alliances, joint ventures, licensing, and franchising. Also known as increase in company sales and profit that is result of forming a business relationship with another partner.

• Advantages of external Growth :

• Reducing competition
•  Getting access to proprietary products
•  Gaining access to new products and   markets

•  Access to technical expertise
•  Access to an established brand name
•  Economies of scale
•  Diversification of business risk

SWOT analysis:

Honda

STRENGTHS

• Established brand name
• Known for quality and design capability.
• Strong presence in home market and North America.
• Known for motor cycles in the European markets.
• Strong financial position
• State of art production processes.

WEAKNESSES

• Limited success in the large European markets.
• Small presence in the European cars markets.
• Smaller in size compared to the large European and American giants

Rover

STRENGTHS

• Established brand name
• Top of the range models doing well
• Ford Fiesta and Mini doing good
• Good European presence
• Good distribution network in Europe.
• Knowledge of the UK and European markets.
• Extensive manufacturing capacity in UK.

WEAKNESSES

• Loss of market share – between 1968 -1978 fell from 40% to 23%
• Difficult trade unions- unsuccessful industrial relations
• Unsuccessful products- mid-range vehicles not doing well
• Low popularity because of design/ build/ durability
• Poor workmanship and finish
• Excess manufacturing capacity.

Honda & Rover

OPPORTUNITIES

• Economic stability and increasing disposable income in Europe and US.
• Markets outside Europe opening up.
• Growing demand for super mini sized cars.
• Three key auto markets- Far East, Europe and N America.
• Possibility of synergies with local producers.

THREATS

• Increasing competition in the European automobile markets.
• Serious competition from US brands like Ford and GM.
• Mid range British cars facing more competition from Ford brands.
• In the late 1970s world auto industry starting to stagnate.
• New markets difficult to enter because of import restrictions.
• Pressure to control costs/ spread the risks.

Honda and Rover choose to use external method of growth because of the following advantages:

• Reducing competition
•  Getting access to proprietary products
•  Gaining access to new products and Markets.

•  Access to technical expertise
•  Access to an established brand name
•  Economies of scale
•  Diversification of business risk

Compare the method of growth used by Honda and Rover to achieve their strategic objectives with other available growth methods:  

Following are the objects of Honda and Rover :

• Honda’s  strategic objectives To enter into the UK and European markets.
• Rover’s  strategic objectives To retain its market share in the UK and European markets.

As mentioned earlier Honda and Rover choose to use External method of growth.  External method can be define as Rely on establishing relationships with third parties, such as mergers, acquisitions, strategic alliances, joint ventures, licensing, and franchising.

On the other hand internal method of growth is Involve efforts taken within the firm itself, such as new product development, other product-related strategies, and international expansion.