Everybody’s Bike – Honda and Fujisawa

WikiTōkai Seiki (40% owned by Toyota) was the first factory run by  Soichiro Honda, producing piston rings for Toyota during WW2. A US B-29 bomber attack destroyed Tōkai Seiki’s Yamashita plant in 1944. Soichiro Honda sold the salvageable remains of the company to Toyota after the war for ¥450,000 (2500USD!), and used the money to start Honda Technical Research Institute in October 1946. With a staff of 12 men working in a 16 m2  shack, they built and sold improvised motorized bicycles, using a supply of 500 two-stroke 50 cc Tohatsu war surplus radio generator engines. When the engines ran out, Honda began building their own copy of the Tohatsu engine, and supplying these to customers to attach to their bicycles. This was the Honda A-Type, nicknamed the Bata Bata for the sound the engine made. c4In 1949, the Honda Technical Research Institute was liquidated for ¥1,000,000, or about US$5,000 today; these funds were used to incorporate Honda Motor Co., Ltd. At about the same time Honda hired engineer Kihachiro Kawashima, and Takeo Fujisawa who provided indispensable business and marketing expertise to complement Soichiro Honda’s technical bent. The close partnership between Soichiro Honda and Fujisawa lasted until they stepped down together in October 1973. The first complete motorcycle, with both the frame and engine made by Honda, was the 1949 D-Type (98cc, 80kg, D from Dream). Honda Motor Company grew in a short time to become the world’s largest manufacturer of motorcycles by 1964.honda_dream_dAt its peak in 1982, Honda manufactured almost three million motorcycles annually. By 2006 this figure had reduced to around 550,000. During the 1960s, when it was a small manufacturer, Honda broke out of the Japanese motorcycle market and began exporting to the U.S. Working with the advertising agency Grey Advertising, the campaign was hugely successful; the ads ran for three years, and by the end of 1963 alone, Honda had sold 90,000 motorcycles.
Honda’s story as an archetype of the smaller manufacturer entering a new market already occupied by highly dominant competitors, the story of their market entry, and their subsequent huge success in the U.S. and around the world, has been the subject of some academic controversy.
1# Mass Production – The first of these explanations was put forward when, in 1975, Boston Consulting Group was commissioned by the UK government to write a report explaining why and how the British motorcycle industry had been out-competed by its Japanese competitors. The report concluded that the Japanese firms, including Honda, had sought a very high scale of production, they had made a large number of motorbikes in order to benefit from economies of scale and learning curve effects. It blamed the decline of the British motorcycle industry on the failure of British managers to invest enough in their businesses to profit from economies of scale and scope.supercub_ad_retro2# Market adaptability & hard work –  The second explanation was offered in 1984 by Richard Pascale, who had interviewed the Honda executives responsible for the firm’s entry into the U.S. market. As opposed to the tightly focused strategy of low cost and high scale that BCG accredited to Honda, Pascale found that their entry into the U.S. market was a story of “miscalculation, serendipity, and organizational learning” – in other words, Honda’s success was due to the adaptability and hard work of its staff, rather than any long term strategy. Honda’s initial plan on entering the US was to compete in large motorcycles, around 300 cc. Honda’s motorcycles in this class suffered performance and reliability problems when ridden the relatively long distances of the US highways. When the team found that the scooters they were using to get themselves around their U.S. base of San Francisco attracted positive interest from consumers that they fell back on selling the Super Cub instead.
3# Technology Leadership – The most recent school of thought on Honda’s strategy was put forward by Gary Hamel and C. K. Prahalad in 1989. Creating the concept of core competencies with Honda as an example, they argued that Honda’s success was due to its focus on leadership in the technology of internal combustion engines. The high power-to-weight ratio engines Honda produced for its racing bikes provided technology and expertise which was transferable into mopeds. Honda’s entry into the U.S. motorcycle market during the 1960s is used as a case study for teaching introductory strategy at usiness schools worldwide.

soichiro-honda-and-takeo-fujisawa4#Everybody’s bike/global exports – The idea for a new 50cc motorcycle was conceived in 1956, when Honda Motor’s Soichiro Honda and Takeo Fujisawa toured Germany and witnessed the popularity of mopeds and lightweight motorcycles. Soichiro Honda was primarily the engineering and production leader of the company, always with an eye towards winning on the racetrack, while his close partner Fujisawa was the man of finance and business, heading up sales and formulating strategies intended to dominate markets and utterly destroy Honda Motor’s competitors.
Fujisawa had been thinking about a long term expansion strategy, based on a small, high-performance motorcycle. Soichiro Honda came to Europe to win the Isle of Man TT race and was at the time tired of listening to Fujisawa talk about his new motorcycle idea. Fujisawa and Honda visited Kreidler and Lambretta showrooms, as well as others, researching the kind of motorcycle Fujisawa had in mind. Fujisawa said the designs had “no future” and would not sell well.His concept was a two wheeler for everybody, one that would appeal to both developed and developing countries, urban and rural. The new motorcycle needed to be technologically simple to survive in places without up to date know how and access to advanced tools or reliable spare parts supplies. Because Honda was a large company growing larger, it needed a mass appeal product that could be produced on an enormous scale. The design had to be sorted out before production began, because it would be too costly to fix problems in the vast numbers that were to be manufactured. The scooter type nearly fitted the bill, but was too complex for developing countries to maintain, and the small wheels did poorly on badly maintained or nonexistent roads. Another of Fujusawa’s requirements was that it could be ridden with one hand while carrying a tray of soba noodles, saying to Honda, “If you can design a small motorcycle, say 50 cc with a cover to hide the engine and hoses and wires inside, I can sell it. I don’t know how many soba noodle shops there are in Japan, but I bet you that every shop will want one for deliveries.”honda-topOnce interested, Soichiro Honda began developing the Super Cub on his return to Japan. The following year Honda displayed a mockup to Fujisawa that finally matched what he had in mind, Fujisawa declaring the annual sales would be 30,000 per month, half again as many as the entire monthly two-wheeler market in Japan. His goal was to export motorcycles on a scale yet unseen in the economic disorder of postwar Japan, when most companies’ halting trade efforts were handled through foreign trading companies. Honda would have to establish its own overseas subsidiary to provide the necessary service and spare parts distribution in a large country like the United States. To this end American Honda Motor Company was founded in 1959. In 1961 a sales network was established in Germany, then in Belgium and the UK in 1962, and then France in 1964.
5# Light plastic bodywork – The Honda Juno had been the first scooter to use polyester resin, or fiberglass reinforced plastic (FRP), bodywork, and even though production of the Juno had stopped in 1954 as a result of Honda Motor’s financial and labor problems at the time, Fujisawa continued to encourage research in polyester resin casting techniques, and these efforts bore fruit for the Super Cub. The new motorcycle’s fairing would be polyethylene, the most widely used plastic, which reduced weight over FRP, but Honda’s supplier had never made such a large die cast before, so the die had to be provided by Honda. The Super Cub was the first motorcycle ever to use a plastic fairing. Motorcycling historian Clement Salvadori wrote that the plastic front fender and leg shields were, “perhaps the Cub’s greatest contribution; plastic did the job just as well as metal at considerably lower cost.” sc-eng3# The technology developed in the Isle of Man TT racing program was equally vital to the new lightweight motorcycle, making possible 3.4 KW (4.5 hp) from a 50 cc four-stroke Honda engine, where the first engine the company built a decade earlier, had only a 0.37–0.75 kilowatts (0.5–1 hp) output. Honda’s first four stroke, the 1951 E-type, had just a little more power than the Super Cub, 3.7 kilowatts (5 bhp), with nearly triple the displacement, 146 cc (8.9 cu in).
To make the new motorcycle, Honda built a new ¥10 billion factory in Suzuka, Mie to manufacture 30,000, and with two shifts, 50,000, Super Cubs per month. The factory was modeled on the Volkswagen Beetle production line in Wolfsburg, Germany. Until then, Honda’s top models had sold only 2,000 to 3,000 per month, and observers thought the cost of the new plant was too risky. Edward Turner of BSA went to Japan to see the motorcycle industry in September 1960, and said that investments the size of the Suzuka plant were “extremely dangerous” because the US motorcycle market was already saturated. When completed in 1960, the Suzuka Factory was the largest motorcycle factory in the world, and was a model for Honda’s mass production facilities of the future. The economies of scale achieved at Suzuka cut 18% from the cost of producing each Super Cub when Suzuka could be run at full capacity, but in the short term Honda faced excess inventory problems when the new factory went into operation before the full sales and distribution network was in place.honda-cubIn 2008 Honda rolled off an assembly line the 60 millionth Honda Super Cub. Super Cub motorcycle is  the best-selling vehicle in the history of internal combustion: the Cub isn’t very fast and it isn’t very pretty, but it’s everything you need in basic transportation – cheap, efficient and damn near indestructible. It’ll take as much abuse as you can throw at it and come back for more. You can even toss it off a building and it’ll start right up.
By 2014 Honda builds its 300 millionth motorcycle.  The Cub F clip-on motorcycle power unit of 1952 helped mobilize postwar Japan and bolster Honda’s bottom line, but it was the Super Cub moped, which was introduced in 1958, that would eventually cement Honda’s reputation as a motorcycle manufacturing titan. By early 2014, cumulative global Cub series production numbers reached a staggering 87 million units. That’s enough to make it far and away the best-selling motorcycle of all time — and enough to smash the Toyota Corolla’s record as best-selling motor vehicle model of all time.
Cumulative Global Production of Cub Series Motorcycles Reaches 60 Million Unitscub-sales0#Sales Network out of Thin Air – Honda dedicated his company to racing, leading the technology race in the global motorcycle industry. But it was Fujisawa’s extraordinary new sales strategy that made the growth  possible. In 1952 Fujisawa realized there was a completely undeveloped distribution network that everyone else had ignored. He was the only one in the company who was able to understand its potential. Fujisawa was thinking of the bicycle shops that one could find all over Japan. The management team were amazed by his fresh thinking and insight. Kawashima recalls: “And so it was that we carried out our plan to contact the country’s 50,000 bicycle shops by direct mail. Mr. Fujisawa wrote the DM brochure and it was a masterpiece, very carefully prepared and skillfully composed. Both stages of his campaign showed just how thoroughly he had understood his potential customers’ way of thinking. ‘After the Russo-Japanese War (1904-05), your ancestors took the courageous decision to launch the imported bicycles in Japan and they are still the basis of your business today. But now customers want bicycles with engines. We at Honda have made such an engine. Please reply if you are interested.’ That was Mr. Fujisawa’s first message and he received 30,000 enthusiastic replies. 30.000 out of 50.000! He immediately embarked on the second stage of his campaign. ‘I am delighted to learn of your interest and we shall be distributing one machine per shop, on a first come first served basis. The retail price will be 25k yen and the wholesale price will be 19k yen (30% shop profit). Payment can be made by postal transfer or through the Kyobashi branch of Mitsubishi Bank.’” “In a further effort to secure orders,” Kawashima continued, “Mr. Fujisawa got the Kyobashi branch of Mitsubishi Bank to help by sending out a letter signed by the manager requesting customers to send their remittances to Honda through the Mitsubishi Bank’s Kyobashi branch. Excited and apprehensive, we all waited to see what would happen.” Forty-seven years ago there were no automated means of sending out 50,000 letters. Every single address had to be written out by hand. This work was put out to freelance clerks but even so there was not enough time and all the staff had to join in as well, helped by employees of the Mitsubishi Bank’s Kyobashi branch. “The response was incredible. We had immediate replies from 5,000 shops and the figure just kept on going up. So the Cub F-Type went into mass production. It was a fantastic success, shipping 6,000 units in October and 9,000 in December.bksThe bicycle world was used to ordering goods on consignment and the idea of pre-payment came as a bit of a shock to them but it fitted their needs perfectly. If you ask me, Takeo Fujisawa had real guts and knew how to take a finely-balanced gamble,” he continued, laughing. “He succeeded in creating an independent sales network in almost no time at all.” Fujisawa also developed techniques for following up the response from the bicycle shops. He bought light aircraft for the company and used them to shower promotional leaflets from the sky all over Japan – of course the leaflets always included the names of the local outlets.
Around this time Fujisawa also put in place a unique consumer hire purchase system of payment by monthly installments. Although the Cub F-Type was only 25,000 yen, that was still more than three months’ starting salary for the average white-collar worker. So Fujisawa thought up a revolutionary way of organizing loans. The way it worked was that if, for example, a customer wanted to pay in twelve installments, he or she would sign twelve promissory notes which were endorsed by the retailer and passed on to Honda. This was a good system both for the customers and for Honda. It meant that Honda could be sure of getting paid and if by any chance there was a problem it only applied to a single purchase, thereby minimizing the risk.
“Mr. Fujisawa’s writings include a book entitled ‘Light the torch with Your Own Hand.’ This title means that ‘If you don’t carry your own light you can’t lead the way. If you walk with light provided by others, you will always be bringing up the rear. You may be sure of never losing your way or stumbling, but you’ll never be a leader.’ In terms of marketing networks, ‘If you simply make use of existing methods you’ll never be able to make real money.’ The essence of Mr. Fujisawa’s sales strategy was to build up networks using your own ideas and policies so that you can do business exactly the way you want,” said Kawashima.honda_super_cub_production_1958_to_2008From the moment they first met, Honda and Fujisawa would get together every day and every evening, sitting up into the night talking together, encouraging each other in endless conversation. “They never told us much about the subjects of their conversations so I can really only guess, but I think they were plotting, exchanging their innermost thoughts. And I suppose that’s how the two of them, although they were so different, were able to share so completely everything that lies at the heart of what we now call the ‘Honda philosophy’. For example Mr. Honda used to say that ‘the basis of a successful business is not capital but ideas’. Mr. Fujisawa could agree with that – both of them always worked hard at thinking. Well, as they hadn’t got any money, they had to have ideas!,” said Kawashima, laughing. “It was their duel of wits that built the company. They were ideal partners but they were also friendly rivals. ‘Leave me to get with my business!’ ‘Hey, look at what I’ve done!’ they would say as they tried to outdo one another. They were a fantastic team!” Fujisawa, the salesman, responded to the wishes of Mr. Honda, the maker, and turned in a superb performance.electric-cub

THE WORLD’S BESTSELLING VEHICLE GOES ELECTRIC – In 2015 Honda recently revealed at the Tokyo Motor Show the EV-Cub concept. The heavy battery in a low and central position, lowering the center of gravity. The battery is detachable, so the rider can take it inside their home and charge it from a standard wall socket. The current Honda Super Cub  has sold 87 million units as of March 2014, making it the bestselling motor vehicle in history.

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