Case Study 3

208 Part 2 Strategy Content and Formulation for Multinational Companies

their products unique in quality, style, and perfor­ mance. Their motorcycle production concentrates on three different series, each stressing superior quality. BMW's strategy is based on premium pricing and building the best motorcycle that money can buy by setting the standard in technology, environment, and safety in all of their product offerings. Each of their motorcycles portrays the traditional motorcycle image; however, BMW also includes elements of sophistication and class in their pFoducts. All of BMW's motorcycles have high resale values; however, their high purchase price limits their market share.

Honda Honda is the world leader in motorcycle manufacturing with 17 percent of the North American market, 22 percent of the European market, and

23 percent of the Asian-Pacific market. In 2008, Honda and its affiliated companies sold over four million motorcycles in India alone. Honda combines excellent engineering and quality with highly auto­ mated manufacturing to achieve significant economies of scale. Honda has been able to leverage its low-cost advantage into global leadership.

Honda is a diversified company that at one time surpassed Toyota in sales to become the third­ largest automobile company in the United States. In addition to motorcycles and automobiles, Honda man­ ufactures all-terrain vehicles (ATVs), outboard motors, generators, lawn care equipment, and other power products. Honda has a presence in the financial ser­ vices industry, providing financing options for motorcy­ cle and automobile dealers and consumers. Honda's niche in the U.S. motorcycle market is touring bikes. With up to 1,500 cc water-cooled engines, Honda's touring bikes are high quality, refined, comfortable, and fuel efficient. Honda encourages creativity and is widely regarded as being the global leader in four­ cycle gasoline engine technology.

Kawasaki Kawasaki is a world leader in the trans­ portation equipment and industrial goods industries with diverse product lines in each category. Kawasaki motors is focused on motorcycles, ATVs, jet ski water­ craft, utility vehicles, rail cars, wheels, robots, and engines for consumer products such as lawnmowers. Kawasaki is well-known for providing a wide range of products that offer high-performance and low­ maintenance attributes. Kawasaki offers multiple mod­ els of motorcycles, making them competitive in many different facets of the industry, including touring bikes, sport bikes, off-road bikes, dual-purpose bikes, street bikes, and police bikes.

Kawasaki has a large international presence with production facilities in Southeast Asia, China, Europe,

and the United States. They hold the third-largest motorcycle market share in North America at 10 percent, the fourth-largest share in the Asian-Pacific market at 19 percent, and the fifth largest share in European mar­ kets at 12 percent.

Suzuki Suzuki manufactures automobiles, com­ mercial vehicles, outboard motors, and ATVs. Suzuki is the third largest manufacturer of motorcycles, lag­ ging behind only Honda and Yamaha. Motorcycles comprise 19 percent of the company's total sales. Suzuki motorcycles have a significant international presence with sales in over 190 countries. Eighty per­ cent of Suzuki's total motorcycle sales are in offshore markets. Suzuki began using joint manufacturing efforts in foreign countries in 1993 and uses direct sales subsidiaries to reach customer s. The joint manufacturing efforts require constant and dynamic technical cooperation between groups using cost­ reduction activities to achieve their ongoing goal of providing a low-cost product. Efficiency is the back­ bone of Suzuki's low-cost position in the industry.

Yamaha Yamaha has manufacturing facilities, dis­ tribution, and R&D operations in many international markets. Yamaha focuses on tailoring its products to local market conditions. Yamaha Motor Company has a diverse prnduct line including outboard motors, boats, personal watercraft, generators, golf carts, ATVs, snowmobiles, outdoor power equipment, race kart engines, accessories, apparel, and motorcycles. Yamaha produces a full line of motorcycles, ranging from scooters to heavyweights; however, their com­ petitive advantage focuses on speedy and high­ performance racing bikes. Yamaha's motorcycle sales are strong globally; they currently hold the fifth largest market share in North America, the third largest in Asia-Pacific, and the second largest in Europe. Their target market throughout the world is the young and thrill-seeking consumer who sees riding as a sport.

The H-D Company in 2008

H-0 is an American icon with a loyal customer follow­ ing that has been described as cult-like. The company has to be careful not to offend its traditional customers by going too far, too fast. With one notable exception, H-D's line of motorcycles are engineered and designed to evoke an earlier age. Although the com­ pany has continuously been in business since 1903, today's company is the result of a leveraged buyout in 1981. The 1980s proved to be a difficult time, and the company was often on the brink of failure. The 1990s brought a complete reversal in H-D's fortunes with the

Chapter 5 Strategic Management in the Multinational Company 209

emand for the company's motorcycles far outstrip­ The second objective, restructuring operations, is

ing supply. During this period it was not unusual for buyer to have to wait as long as two years to ake delivery on the company's most popular models. rofits soared and H-D became the darling of Wall Street. By 2005 management had narrowed the gap between demand and supply. By carefully managing growth, the company ensures that its bikes are not too easy to come by. Starting in 2007, the company as forced to cut back on manufacturing to avoid over­ supplying the market. Managing the supply of H-D motorcycles maintains high prices and permits H-D to avoid having to offer promotions and discounts to sell its product. Promotions and discounts are practices

that are inconsistent with a luxury good.

H-D's premium pricing limits the number of young buyers. Two-thirds of its customers are between the ages of 35 and 54 years. H-D has redesigned some of its bikes to better accommodate female riders. The percentage of female buyers has reached 12 percent and continues to move slo.wly upward. H-D also offers motorcycle driver education courses, where 40 per­ cent of the participants are women.

For the most part, the company has failed in its attempts to diversify into related industries. The economic downturn of 2007-2008 negatively impacted Harley­ Davidson Financial Services (HDFS). HDFS's primary business is to provide financing and insurance to H-D dealers and buyers. In 1998 H-D moved to expand its presence within the motorcycle industry when it acquired the outstanding shares of the Buell Motorcycle Company. While sharing components and technology with H-D, the performance-oriented Buell is intended to attract younger and nontraditional riders to the H-D family. In 2008 H-D acquired the European motorcycle manufacturer, MV Agusta, which includes the MV Agusta and Cagiva brand names. MV Agusta products emphasize design and performance and feature a liquid-cooled, four­ cylinder engine design. Caviga products are lightweight sport bikes featuring 125-cc air-cooled engines.

H-D Strategy In 2008 H-D's strategy incorporated three objectives, at least two of which are a direct result of the economy: (1) investing in the H-D brand, (2) restructuring operations and reducing the cost structure, and (3) obtaining funding for HDFS.

The first objective, investing in the brand, is to be achieved through a two-pronged approach. First, the company intends to increase its market base by reach­ ing out to nontraditional rider groups, including women and minorities. The second prong is directed at its tra­ ditional rider group, and product innovation is the vehi­ cle of choice for reaching this group.

to be accomplished by plant closing and outsourcing. The company will close two engine and transmission plants in Milwaukee and move their operations to a third plant in Menomonee Falls, Wisconsin. Paint and frame operations in York, Pennsylvania, will be com­ bined with other operations at that site. A distribution facility in Franklin, Wisconsin, that handles parts and accessories will be closed and its operations out­ sourced. Finally, the company's trucking operation will be terminated and its activities outsourced. It is expected that restructuring and reduced product demand will result in the loss of 1,500 hourly and sal­ aried positions.

The third objective, obtaining funding for HDFS will be the most problematic and includes:

· Accessing the unsecured debt capital markets.

· Increasing asset-backed credit.

· Renewing existing lines of credit.

· Accessing the asset-backed securitization market through the U.S. Federal Reserve programs.

H-D has found it difficult to sell motorcycles without providing a source for financing. Consequently, the company's well-being hinges on the liquidity of HDFS.

H-D Human Resources Management H-D·prides itself on open communication with its union and non­ union employees and on its team-based culture. Employees are involved in goal setting, and this practice facilitates a shared vision of the company's direction. Self-directed work groups are the norm. Departmental differences are minimized through a focus on cross-functional communications. These types of personnel practices are known as partnering at H-D; partnering results include increased employee motivation and a reduced need for supervision.

The company developed its Performance Effective­ ness Process to foster both employee performance and career development. Employees are rated on a form that includes over 90 descriptors, which include:

(1) values diversity in· the workforce, (2) does what he/she says he/she will do, and (3) responds in a posi­ tive manner to criticism. The performance evaluation was tested and refined on managers before it was used on the workforce. H-D takes career development seriously and has formalized all the company's learning, training, and development initiatives under its Leader­ ship Institute. Each year over a third of the company's employees attend the institute's courses. Management believes these courses improve the company's

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Part 2 Strategy Content and Formulation for Multinational Companies

competitiveness, while giving employees the knowledge and skills needed for advancement and personal growth. H-D prefers to promote from within the com­ pany to give employees opportunities for advancement and to demonstrate the company's commitment to retaining talent. This is why they also have an extensive tuition reimbursement program, including undergradu­ ate and graduate programs offered through Marquette University and Milwaukee Area Technical College. H-D even developed a program to assist its distributors. Classes offered at H-D University (HOU) help distribu­ tors improve customer satisfaction, store layout, and merchandising.

An emphasis for HOU is teaching dealers how to market and sell motorcycles. Until 2005-2006, the H-D's dealers functioned as order takers. Demand for H-D motorcycles exceeded manufacturing capacity, and most buyers had to wait a few months before receiving their bikes. During the transition from the 2005 to the 2006 model years, supply briefly exceeded demand. For the first time in the memory of most deal­ ers, unsold motorcycles were sitting on the showroom floor. The fact that dealers simply didn't know how to handle this situation became painfully evident when sales trended downward in 2007. HOU stepped in to help H-D dealers learn what every successful car dealership already knows: how to sell your product.

In 2008 the company employed approximately 9,000 employees in the manufacture of motorcycles. As a function of their geographical location, unionized employees are represented by one of two unions. H-D had incurred only one previous strike since the AMF buyout in 1981 when in 2007 the employees at the York, Pennsylvania, plant went on strike for three weeks. The bones of contention were pay, a tiered wage system, and copay for medical benefits. In the end workers received a 12 percent wage increase

Harley-Davidson Manufacturing Facilities

over three years, and the company received a lower starting wage for new employees. The tiered wage system flew in the face of Harley's compensation structure, which had traditionally been driven by two guidelines: (1) make a larger portion of the employee's pay at risk or variable and (2) compensate all employ­ ees in the same manner. An example of a bonus com­ pensation system used for employees is giving equal percentage bonuses, based on 15 percent of sales. It is believed that this practice minimizes differences in employee pay and promotes teamwork and lessens jealousy among employees. H-D generally evokes a deep commitment from employees. Building consen­ sus with union employees is H-D's standard practice. Resolving the occasional union grievance is left to the employee's filing the grievance, the union steward, the work group, and the work group's advisor (manager). The grievance resolution is considered binding by the union and the company.

Harley has a time-tested device for keeping up with customer demands and ensuring product quality. Half of the company's 9,000 employees ride a H-D, yet every employee, including the CEO, must go through a dealer to get a bike. This is just a testament to H-D being a company driven by the human resources func­ tion. Fairness and equality are driving this company into the future with a workforce that believes they are part of something special.

H-D Operations H-D has an ongoing production

strategy of increasing the supply of its motorcycles, but at a rate less than that demanded by the market. To this end, the company expanded its manufacturing capacity through 2006. The company tries to position its product development staff in proximity to its manufacturing operations in order to ensure that new product and model changes are coordinated prior to and during ramp-up.

	Facility	Size (sq. ft.)	Part(s) Supplied
	Wauwatosa, Wisconsin	430,000	Powertrain
	Menomonee Falls, Wisconsin	881,000	Powertrain
	Tomahawk, Wisconsin	211,000	Fiberglass parts and painting
	York, Pennsylvania	1,331,000	Parts fabrication, painting, and assembly
	Kansas City, Missouri	450,000	Sportster assembly, V-Rod powertrain
	East Troy, Wisconsin (Buell)	40,000	Buell assembly
	Manaus, Brazil	82,000	Office and subassembly for local markets
	Varese, Italy	1,378,000	MV Agusta facilities
	Adelaide, Australia	485,000	Motorcycle wheels

ChapteJr 5 Strategic Management in the Multinational Company 211

A company operation in South America imports parts and subassemblies from the United States for final assembly in Brazil. Assembling the bikes in Brazil reduces duties and taxes, thus reducing the selling price and increasing the company's market. However, the volume of this facility remains under 1,000 units per year. Bikes for all other international markets are exported from the United States.

H-D actively practices lean manufacturing and quality management. The company continuously strives to improve the quality of its operations while controlling costs. Quality management practices include statistical process control, employee involve­ ment in operations-related decisions, supplier partici­ pation, just-in-time inventory control, and partnerships with the company's unions. H-D trains its employees in the use of statistical methods and problem solving through its Leadership Institute courses. The company is proud of its relationship · with employees and encourages· employee involvement, emphasizing a highly flexible and participative workforce. The com­ pany employs this flexibility in cross-functional teams that review every aspect of the production process.

H-D strives to establish long-term mutually benefi­ cial relationships with its suppliers. The company involves suppliers in the design and manufacturing of its products and quality improvement programs. Harley requires that its suppliers be committed to annual cost reductions even when labor and material costs are ris­ ing. The company believes that vendor involvement results in improved products, the adoption of new technologies, and the smoother introduction of new products and product changes. Supplier involvement is not without its costs and has led to an increase in the number of purchasing engineers from 4 to 30 in the 1990s. The involvement of suppliers has resulted in improvements in productivity and product quality, and a four- to five-day component inventory, all of which translates into an estimated savings of over

$10 million pc:ir year.

In conjunction with its just-in-time inventory and assembly controls, H-D has introduced an automated electrified monorail (AEM) system in its two Wisconsin engine assembly plants. The AEM systems have increased productivity, improved ergonomics and increased the speed of changeover between different assemblies, while freeing up space on the factory floor. Similarly, the company's parts and accessories distribution centers have been highly automated leading to increased speed of delivery and a 99.7 percent level of accuracy.

H-D Marketing August 2003 saw the culmination of H-D's hundredth anniversary celebration when an

estimated 200,000 people participated in events in and around Harley's hometown of Milwaukee, Wisconsin. Riders came from every state and from every inhabited continent. H-D's anniversary was one of the biggest­ some said the biggest-events in Milwaukee's history. H-D's public exposure from the carefully orchestrated event was beyond price, but events and promotions are the norm for H-D. Countless features in the media focus on the company, its bikes, and the image of Harley riders. The company has a long history of successful promotion, and its bikes have costarred in numerous major film productions.

The 130,000-square-foot H-D Museum opened in Milwaukee in 2008. The museum, showcasing both historic and current motorcycles, is intended to strengthen the company's bonds with riders and the general public. The museum includes a restaurant, cate, retail, and meeting spaces. The company will use the space to host special events for the Harley Owners Group (HOG®).

The company's traditional advertising and promo­ tional venues include dealer promotions and coopera­ tive programs, magazine and direct mail advertising, and its famous HOG customer events. The annual gathering in Sturgis, South Dakota, has been the sub­ ject of public television documentaries. H-D's Web site offers an interactive and exhaustive online catalog. Customers can order accessories and customize bikes with hundreds of options. It wasn't until 2002 that Harley-Davison felt the need to advertise its products on television. The result of the company's marketing actions is that Harley-Davison ranks near the top among iconic brands, along with Disney and Apple Computer.

Formed in 1983, the company-sponsored HOG had over 1.1 million members worldwi e in 2008. The group sponsors events, including national rides and rallies, and the company sponsors racing activi­ ties. Harley's buyers are not locked into any social class. You are just as likely to find a CEO on a Harley as a worker off the assembly line. Harley owners are loyal, with 90 percent of buyers reporting the intention of purchasing another Harley bike. Clearly image sells to this demographic, Harley ranks near the 100th per­ centile on the Brand Asset Valuator scale for such qualities as authentic, rugged, daring, dynamic, dis­ tinctive, and high performance. As one Harley owner put it, "What Harley-Davidson appeals to me is that we all think we're cooler than we really are." (Milwaukee Journal Sentinel, August 24, 2003)

A creative tool in H-D's marketing program is its Authorized Rental and Tour program. Operated in the