1. Regional Supplier Networks and Competitive Advantage– Case Studies of Honda and Vietnamese Motorcycle Companies –
(Draft)
Pham Truong Hoang
Graduate School of Information and Environment Sciences – Yokohama National University
JVEC Workshop – 11/22/2003

2. Background and Motive for Study
Japanese style supplier system’s competitive advantage
Japanese direct investment in Vietnam
Vietnam condition- near China, in ASEAN
Vietnamese motorcycle industry in recent years

3. Contents Introduction Key concepts and frameworks
Review of Motorcycle industry in Vietnam and East-Asian region
Regional supplier system – Case of Honda Vietnam Company
Product architecture and component’s supplier system – Cases of Honda and Vietnamese motorcycle companies
Conclusion

4. 1. Key Concepts and Frameworks
(1) Supplier system
Production cost & transaction cost:
Production cost: cost of input
Transaction cost: cost to sustain “asset specific” – (1)search cost, (2)contracting cost, (3)monitoring cost, (4)enforcement cost

5. (2) Business architecture
Product architecture
Product architecture: function-component’s scheme
Interface: components’ connection rule
Closed vs. Opened
Closed: rule of interface designed by one firm
Opened: interface is standardized in the industry
Modular vs. Integral
Modular: one-to-one mapping
Integral: complex mapping (non one-to-one)

6. (3)Japanese style supplier system
High performance, competitive
Transferable to other countries
Exploiting transaction cost economy
Features:
Long-term relation
Specialization
Pyramid structure
Inside competition
Group integration
R&D concentration
Information exchange

7. (4) Performance of supplier system
Short-term:
Cost: low input cost
Delivery: fast and accurate (JIT)
Long-term
Quality: stable in physical feature
Flexibility: fast in self-changing
Design: fast in R&D

8. 2. Review of Motorcycle Industry in Vietnam and in East Asian region
 Development, Consumer market, Competitors, Domestic suppliers
Motorcycle industry in East Asian region
 Overviews, Chinese motorcycle industry, Thailand’s motorcycle industry

9. Motorcycle industry in Vietnam
Source: Ministry of Police quoted by NEU-JICA project 2002

10. Consumer market Rapid development:
Income increased
Price reduced
Striking development of low price segment
Largest segment: low price market
Source: Department of Statistics and author’s investigation

11. Competitors, Market share, suppliers
7 foreign invested, 45 domestic assemblers
Market share: fluctuating
Suppliers- more than 550 classified in three kinds:
In Japanese keiretsu ones
Widely supplying foreign invested ones
Domestic ones
Source: Ministry of Police and author’s investigation

12. Vietnamese Motorcycle Market’s Segments and Positioning in 2002@
Force
Piaggo
Vietnamese Motorcycle Market’s Segments and Positioning in 2002
Jupiter ($1600)
Sirius ($1400)
Chinese parts product($500)
Dream Model
Wave Model
Magic,star $1250
Sanda$850
$ 3,000
$ 1,300
$1,000
$700
Wave Alpha ($730)
Spacy
Supper Dream ($1330)
Dream II
Traditional
Fashion Model
$ 6,000
Future $1660
Viva ($1500) Best ($1300)
Angel $850
$ 4,000
Chinese parts product ($500)
Source: Author’s editing based on expert’s measures and market data

13. Motorcycle industry in East Asian region
Chinese motorcycle industry
Striking development:
Price cutting
“Copy and ameliorate” strategy
Modularization
Source: Honda's "World motorcycle facts and Figures 2001"

14. Thailand’s motorcycle industry
From 1960s
Market share:
Japanese makers-98%
Honda-70%
Localization: 100%
Closed-integral business architecture
Source: Honda's "World motorcycle facts and Figures 2001"

15. Summary Vietnamese motorcycle industry:
Striking development
Increasing competition
Low price segment enlargement
Chinese component’s role
East-Asian regional motorcycle industry
Chinese motorcycle industry modularization
Low price of components

16. Hypothesis (1) Change in Vietnamese market
Decline of Honda in Vietnam before 2002
Development and modularization in regional motorcycle industry
Transferability of Japanese style suppliers system
Advantage of Japanese style supplier system
(1) Honda in Vietnam enlarged its supplier system to regional supplier network
(2) Change of suppliers is in some components

17. Hypothesis (2) Modularizing in Japanese automobile industry
Modularization in regional motorcycle industry
Modularization in components
Outsourcing and modularization’s relation
Dynamics of product architecture
(3) Honda in Vietnam is modularizing partly and based on components
(4) Modularization in Vietnamese motorcycle companies and product architecture is changing dynamically

18. 3. Regional supplier system in Honda Vietnam Company (HVN)
Company background:
Joint-venture : Honda 70%
Establishment: 1997
Capital: 104 million US$
Location: Vinh phuc, 40 km from Hanoi
Products: Super Dream (1998), Future (1999), Wave Alpha (2002)
Labor: 2000 persons
Source: Ministry of Police. Ministry of Trade

19. Wave Alpha product Launch: 2002 Price: Sales: Successful development
US$; US$
Sales:
2002:
H1/2003: (82% HVN’s sales)
Successful development
Low price
Good design
Good quality
The role of supplier system
Source: Ministry of Police, Ministry of trade and author’s investigation

20. HVN supplier system - cross product analysis -
New style supplier system of HVN
Japanese traditional style supplier system
Supplier system of Wave Alpha
Honda Vietnam
Asian Honda (Thailand)
Sundori Honda (China)
First tier suppliers
Second tier suppliers
Supplier system of Super Dream
Honda Vietnam
Honda Asian (Thailand)
Source: Author’s investigation

21. HVN supplier system changes and component classification
HVN supplier system’s change:
(1) Increase domestic suppliers
(2) Increase first tier: domestic ones, non-core parts
(3) Shift to Chinese suppliers
(4) Concentrate on price
(5) Increase second and third-tier suppliers
Component’s classification:
Core components - Honda’s specific parts
Non-core components – Honda’s none-specific parts

22. Performance of new supplier system in HVN
Main characteristics of new supplier system in HVN C D Q F Ds
Notes
(1) Increase domestic suppliers, shift from some Thailand’s suppliers to Vietnamese one (mainly non-core components) +
(-)
*Weak impact because components are non-core
(2) Increase first tier but most of new first-tiers are domestic ones with non-core components
(C- cost, D- delivery, Q- quality, F- flexibility, Ds- Design
+: positive impact, -: negative impact, x: unidentified impact, (): weak impact)

23. Main characteristics of new supplier system in HVN
(Cont.)
Main characteristics of new supplier system in HVN C D Q F Ds
Notes
(3) Shift from some Thailand’s suppliers to Chinese ones:
With core components
With non-core components +
(+)** -
(-)*
* With the development of production in China, negative impact are weak
**Including some “-” impacts
(4) Take price is one of the decisive factor
(5) Increase second and third suppliers x

24. Performance in summary
Characteristics C D Q F Ds
(1) +
(-)
(2)
(3)
(+) -
(4)
(5) x
(C- cost, D- delivery, Q- quality, F- flexibility, Ds- Design
+: positive impact, -: negative impact, x: unidentified impact, (): weak impact)
Source: Author’s investigation by interviews carried in July and August 2003

25. Supplier system of core-components
Honda keiretsu in East Asia:
Engine’s component: suppliers in Japan (and some parts from Thailand)
Transmission’s component: suppliers in East Asia
Supplier systems of core-components C D Q F Ds
Sustain suppliers in Honda keiretsu for most of core-components - +
Source: Author’s investigation by interviews carried in July and August 2003

26. Supplier system in HVN - from performance analysis -
New supplier system:
Supports short term performances: Cost, Delivery
Harms long-term performances: Quality, Flexibilities, Design
New supplier system for non-core components
Traditional supplier system for core components

27. Reasons for developing regional supplier system
Regional condition:
Chinese motorcycle industry and modularization
Vietnamese motorcycle industry:
High development
Market (low price segment) enlargement
Regional strategy of Honda
East Asia regional specialization
Institutional factors:
Policy of localization

28. (Hypotheses (1), (2) are supported)
Summary
Regional supplier network in HVN
Component’s characteristics based
Opened regional system for non-core parts
In keiretsu regional system for core parts
Focusing on cost and delivery, on short-term production cost
Reasons for new network: Industry’s condition, MNCs regional strategy, institutional factors
(Hypotheses (1), (2) are supported)

29. 4. Product architecture and component’s supplier system – Cases of Honda and Vietnamese motorcycle companies-
Case study of HVN
Flexible component’s supplier systems:
Core components:
In-the-keiretsu suppliers
Non-core components
Out-of-keiretsu Vietnamese suppliers
Out-of-keiretsu Chinese suppliers

30. Cont. In-the-system relation: Product architecture
Closed relation
Integral system
Supplier changing inside system
Enlarging the system
Product architecture
Closed-integral
Product architecture
Integral
Modular
Closed
Opened
Hypothesis (3) is not supported

31. Cases of Vietnamese domestic companies
Company A
Increasing in-house production
Company B
Moving to closer relationship in system
Company C
Keeping open supplier system
Company D
Moving to component manufacturing

32. Cont. Entered market by wholly opened-modular
Market-based relationship
New changes:
Increase close relation
Apply in some parts with some suppliers
Product architecture
Integral
Modular
Closed
Opened A B C
Source: Author’s investigation by interviews carried in July and August 2003
Hypothesis (4) is supported

33. 4.3. Summary - Dynamics of product architecture in Vietnam Motorcycle industry-
HVN sustains closed-integral architecture in larger and regional supplier network
Vietnamese companies:
Move to closer relation with more closed product architecture
Sustain opened-modular architecture
Dynamics in product architecture:
Integral
Modular
Closed
Opened
HVN
Vietnamese ones
New architecture

34. 5. Conclusion & Discussion
Regional supplier network in China-Asean region
Mixing and flexible component’s supplier systems
Dynamics of product architecture in components, companies
Discussion:
Change of Japanese style supplier system
Modularization and component’s supplier system
Flexibility of transaction cost & production cost