CASE: HONDA IN NORTH AMERICA ---- Coping with a foreign environment (1) HONDA'S REASONS FOR FDI - The company's belief that there are subtle (and sometimes not so subtle) differences in consumers' taste for cars among different countries ---- > PRODUCE TO MEET CUSTOMERS' SPECIFIC NEEDS AND TASTE: A lesson learnt from their motor cycle business (Honda motor cycles are produced all over the world) - Their 1979 decision for production of cars in the U.S. - - long time before U.S.-Japan trade disputes arose; and long time before the drastic rise in J-yen in 1985 (due to the PLAZA ACCORD) --->suggests PLC theory

(2) How did Honda deal with the uncertainty with their FDI? US$ in 1979 still relatively high against Japanese yen High labour costs in the U.S. were of concern perceived low productivity of U.S. auto workers was also of concern ---- > They tried it out first with motor cycle production, which resolved productivity issues and gave them a learning experience in managing U.S. workers Why did Honda choose Maryville, a small town in Ohio, rather than more established industrialized areas (e.g. Detroit)? (Called "greenfield" approach to FDI) Note: 100% SUBs can be created either by greenfield, or by acquisition (3) Suppliers: Japanese auto makers and their suppliers form "Production Keiretsu" Called also "vertical keiretsu" or "capital keiretsu," by which each of the assemblers (Toyota, Nissan, Honda, Mazda, Mitsubishi Motor,...) Is loosely connected to its suppliers

J-auto firms depend much more on these outside parts suppliers than the Big Three. An often cited characterization of their sourcing methods: GM produces close to 70 % of parts internally; Toyota sources 70 % of parts from suppliers. Did Honda replicate this J-type supplier system (production keiretsu) in the U.S.? Not quite.

EXAMPLE. TOYOTA'S FDI (Figure) What is the benefit of having this (keiretsu) system in the U.S.? The cost ? More generally, how much of their Japanese business practices has Honda been able to implement at its Ohio plant? Industrial relations / management (teams, etc.)? Suppliers management? "Adopting host country business practices versus implementing home country business practices": a serious decision problem in FDI management What are the costs vs. benefits? Do companies from different home countries (Germany, France, Holland, Sweden, the U.S., Canada, Japan, Taiwan, Korea, China,...) behave differently in this regard? Which firms have a universal management style?