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Int. J. Manufacturing Technology and Management, Vol. 11, No. 1, 2007 53

Copyright © 2007 Inderscience Enterprises Ltd.

Learning and technology management in an international partnership: Honda of Japan and Hero of India

R.D. Pathak* Department of Management and Public Administration, School of Social and Economic Development, The University of the South Pacific, P.O. Box 1168, Suva, FIJI Islands Fax: +679-330-1487 *Corresponding author

Zafar Husain Department of Business Administration, College of Business and Economics, United Arab Emirates University, P.O. Box 17555, Al-Ain, UAE Fax: +971-3-762-4384 E-mail: [email protected]

Sushil Department of Management Studies, Indian Institute of Technology Delhi, Vishwakarma Bhawan, Shaheed Jeet Singh Marg, New Delhi 110 016, India E-mail: [email protected]

Danny Samson Department of Management, University of Melbourne, Babel 720, Victoria 3010, Australia Fax: +61-3-9349-4293 E-mail: [email protected]

Abstract: In order to deeply understand mechanisms for developing advanced technologies and their management, we conducted a detailed case study of Hero Honda Motors Limited (HHML), of active international management and transfer of technology, covering technology development, including acquisition, indigenisation, absorption, innovation, phase out, transfer, commercialisation and technology financing and investment.

54 R.D. Pathak et al.

Keywords: strategic Management of Technology (MOT); technology strategy; international technology transfer; international business; technology management; technology transfer.

Reference to this paper should be made as follows: Pathak, R.D., Husain, Z., Sushil and Samson, D. (2007) ‘Learning and technology management in an international partnership: Honda of Japan and Hero of India’, Int. J. Manufacturing Technology and Management, Vol. 11, No. 1, pp.53–76.

Biographical notes: R.D. Pathak is a Professor and Head, School of Management and Public Administration, The University of The South pacific, Suva, Fiji Islands since 16 February 2000. He has taught in various universities for 30 years and also worked as a Commonwealth Academic Staff Fellow at the Manchester Business School in Manchester, UK and as Visiting Fellow in the Department of Management, The University of Melbourne, Australia. He has published three books and a number of papers in refereed international journals. His areas of research interest are: leadership, entrepreneurship, creativity and innovation management, managerial effectiveness and management of technology.

Zafar Husain holds a PhD from Indian Institute of Technology, New Delhi (IITD). His active areas of research interests are Mobile Commerce, Strategic Management of Information Technology and Information System Outsourcing. He has consulted in public and private sector organisations in India and Saudi Arabia. He has published papers in leading refereed journals including International Journal of Technology Management, International Journal of Computer Applications in Technology, Journal of Engineering and Technology Management and Technology Management: Strategies and Practices. Currently, he is holding a faculty position in Department of Business Administration, College of Business and Economics, UAE University, Al-Ain, UAE.

Sushil is a Professor of Strategic, Flexible Systems and Technology Management in the Department of Management Studies, Indian Institute of Technology, Delhi. He has ten books to his credit in the areas of flexibility, systems thinking and technology management. He has over 200 publications in various journals and conferences. He is Editor-in-Chief of Global Journal of Flexible Systems Management. He has acted as Consultant to both governmental and private industrial organisations, a few representative ones are LG Electronics, Rockwell International, Tata Consultancy Services, Tata Infotech Ltd., CMC Ltd., James Martin & Co., Gas Authority of India Ltd. and Sona Koyo Steering Systems.

Danny Samson is a Professor of Management in the Department of Management, University of Melbourne, Australia. He has written 9 books, 70 scholarly papers and serves as Associate Editor of the Journal of Operations Management and on the editorial board of Decision Sciences. He is the President of the Global Manufacturing Research Group. He regularly provides executive education and high level advice to corporations around the world, in industries ranging from banking and insurance to manufacturing and mining. With degrees in Engineering and Management Science, his interests are in operations and innovation management, risk analysis and strategy.

Learning and technology management in an international partnership 55

1 Introduction

Through an in-depth analysis of a lasting and generally successful technology management and manufacturing marketing business alliance, this paper provides insights about why and how such arrangements can work to the advantage of the stakeholders. We traced the partnership and the technology transfer between a leading Japanese company (Honda) with leading edge automotive technology, and an Indian company (Hero Motors) with a sound domestic market share and solid local reputation. Each had the potential to add significant value to the other, conditional upon their core value systems being compatible. One company, Hero, had the local market presence and the other Honda, had the right technology, in other markets. As part of this case study, we surveyed 152 Indian automotive industry executives, who rated the joint venture against industry average perceptions on 25 dimensions.

The key question is how to make an optimal use, in terms of value creation, of technological leadership, in a foreign market that is relatively less sophisticated than that of the technology source. Such matters are strategic issues, not tactical for both the international source and the local host company. The degree to which the technology is appropriate is measured in both technical terms, and most importantly in business, market and financial terms. Strategic technology management for stakeholders engaged in a major international technology transfer refers to the decisions of resource-base, design, technical specifications, organisational arrangements and fees, incentives, financials and contracts, marketing, manufacturing, branding and supply chain and finally, leadership and cultural and philosophical fit of those stakeholders. For the company in the developing market, Hero of India, strategic choices include whether to develop technology in-house, or else to buy or license it in. This will be decided on the basis of strategic, technical and financial measures.

An early proponent of strategic technology management had emphasised that corporate leaders must “better understand the management of technology, its development, its innovation, and its use within the organisation; the nature of technological change and its diffusion; and the consequences of technological shifts upon the corporation” (Roberts, 1983, p.2). However, Loveridge and Pitt (1990) claimed that technology has ‘probably always’ been a preoccupation for strategic managers. Research by Clarke et al. (1995) suggested that “the major unfinished business of the research literature is to provide managers with needed guidance in their formulation of a technological strategy for their companies” (p.169). Drejer (1996) pointed out that strategic technology management did not emerge as a distinct area of managerial and academic interest until the late 1980s. The strategic approach was a response to the perceived failure of the more traditional techniques for exploiting technology such as research and development management. This failure had three elements: technology absorption; high rate of implementation failure and poor handling of the social consequences of new technology (Drejer, 1996, p.13). According to Drejer (1996), the field of Management of Technology (MOT) is divided into four schools of thought: the R&D management school, the innovation management school, the technology management school and the strategic MOT school. He therefore proposed a contingency view of MOT containing elements from all four schools of thought in some creative mix because every company’s environment has characteristics, which range from relatively simple and predictable to complex and unstable.


A number of other writers also emphasised the importance of managing technology strategically (Birchall and Tovstiga, 2002; Bowonder, 1998; Clarke et al., 1995; Coombs and Richards, 1991; Davenport et al., 2003; Dodgson, 1991; Ford and Saren, 1996; Friar and Horwitch, 1985; Husain and Sushil, 1997; Jones and Smith, 1997; Jordan, 1999; Kantrow, 1980; Kim, 1998; Madsen and Ulhoi, 1992; Medcof, 2000; Pavitt, 1990; Rieck and Dickson, 1993; Robert and Westphal, 1994; Sarason and Tegarden, 2001; Solomon, 2001; Wilbon, 1999). While strategic MOT is increasingly recognised as a key source of competitive advantage, there is still much debate about how to define the concept of technology strategy (Clarke et al., 1995; Rieck and Dickson, 1993). Existing definitions range from quite specifically focusing on technology development to very broad knowledge-based definitions (Davenport et al., 2003). Some earlier definitions were quite specific about framing the content of technology strategy as a set of choices that needed to be made about technology development, that is, broad versus specialised, product versus process and whether to be a market leader or follower (Jones et al., 1994; Pavitt, 1990). There also appears to be some confusion in the literature between technology strategy and knowledge strategy. Davenport et al. (2003) preferred to think of technological knowledge as a subset of a firm’s organisational knowledge, as many non-technological process and routines would not be a part of a technology strategy. Conversely, there are many physical aspects of a firm’s technology, such as standard manufacturing equipment, that would not necessarily be regarded as part of the organisation’s competitive knowledge base, as such, given that such technology is generically available (Davenport et al., 2003). Further, they also suggested that technology strategy is not the same as competitive strategy although the two may be very close in high technology organisations. The following view of technology strategy, which is based on Ford’s (1988) definition and the work of Solomon (2001), can be taken for purposes of understanding technology strategy:

“Technology strategy encompasses the acquisition (or exploration), management and exploitation of technological knowledge (and technology) and resources by the organization to achieve its business and technological goals.”

These three major aspects of technology strategy, that is, acquisition, management and exploitation of technology and technological knowledge are identified here. However, within each of these three aspects of technology strategy there are a myriad of other contributing components, which have been summarised from the literature by Davenport et al. (2003) in the form of an adapted technology strategy framework based on the research work of Solomon (2001). Figure 1 shows the conceptual model behind our case analysis and survey instrument. Business strategy is shown as the highest-level construct, with technology strategy seen as its ‘servant’, although we recognise that opportunities can arise from influences in the other directions. Further the technology strategy can then be related to the components of decisions being made, such as technology acquisition, including transfer or licensing in.

Technological change is also known to have been a major determinant of national economic development in industrialised economies. Many studies have shown that more than 50% of long-term economic growth stems from technological changes that improve productivity or lead to new products, process or industries (Grossman, 1991). For this reason, the question often raised is how Science and Technology (S&T), which appears to be the key to industrial development in advanced countries, can be effectively used for economic and social development in developing countries (Kim, 1980). Industrial development is, in fact, a process of acquiring technological capabilities in the course of


continuous technological change (Pack and Westphal, 1986). A study by Zahra and Covin (1994) also empirically explored the association of a firm’s approach to domestic and international operations with its technological choices and financial performance. The technological choices examined included commitment to leading the creation of new technologies, emphasis on internal and external sources of technology, capital spending for technological pursuits and research and development investments. For companies in emerging economies, a strategic technology choice is whether to spend the time and money, and also bear the risk of developing new technology, or else to buy or license it in from an advanced company that has already got that technology working in a developed country.

Figure 1 The framework of business technology, technology strategy and technology management processes used as a model in our case study and survey

The Asia-Pacific region in particular is considered by many scholars, practitioners and investors to be one of the dynamic and rapidly growing economic regions in the world. The region is a voracious importer of new technologies and an innovative user of existing technologies. It is also a competitive producer and exporter of new technologies. Many of these countries have undergone major economic reforms to be able to facilitate the domestic firms to compete in the global market. Many strategic alliances, joint ventures and collaborations have come into existence after economic reforms were implemented.

“Studying Asian economies provides a unique opportunity to investigate the intersection of culture, stage of economic development, economic forms (e.g., various hybrids of socialistic and capitalistic practices), and historical conditions on technological development” (Liker et al., 1998).


This study addresses issues related to MOT in the changing global scenario, in general, and within a major Indian industry, in particular. It is clear that ‘reinventing the wheel’ time and time again is likely to be less efficient than setting up a market mechanism for licensing its use in various places, once it is well-developed in one company, especially when the licensee and licensor operate in different countries/markets.

Technological changes and decisions to adapt to the changes in the environment can make or break an organisation. Examples of the significant impact of commercialising a technology on the overall performance of the organisation are numerous, from the invention of the steam engine to intelligent cars. Active transfer of technology has been considered via a model of technology acquisition wherein the technology provider and receiver have almost the same stake in equity holdings; have joint or equal management control, and therefore have equal and aligned commitment to make the firm a commercial and technological success. The technology provider chooses technology borrowers on the basis of their strengths in the proposed country and the technology borrower has an opportunity to choose from technology providers in the context of opportunities and threats that exist and are envisaged in the global environment. Transfer of technology often takes place on a continuing basis. Acquisition of technology related logical extensions and incremental innovations may or may not be intensive, depending upon the terms mutually agreed by the partners. To resolve the conflict of interest arising from time to time and to ensure sound technological and financial health of the firm; there may exist a written document, which can be renewed after a fixed period of time, of course with need-based modifications. Though technology has been the basis for such emerging joint ventures; the technology management function does not de-emphasise finance, marketing, personnel and other classic functions of an organisation, because active transfer of the technology substantially affects them.

The objective of this study was to assess the technology management practices in the Indian automobile industry with a special emphasis on clarity in technology acquisition, developing capabilities to adopt, adapt, and implement new technologies, indigenisation, competitiveness and effectiveness of technology alliances. During the course of this study the issues addressed also included: technology strategy of the firm, technology transfer model followed, technology as a powerful tool for competitive advantage, innovation culture in the organisation, technology development, vendor development, research productivity, building core competencies and the technology strategy framework being evolved and followed.

The study also aims at ascertaining the perception of the corporate world about the strategic MOT and addresses many questions such as: what do the top and middle MOT based or technology intensive organisations expect from technology management strategies? This study aims to help firms within the automobile industry to deal effectively with six forces that would transform the automotive world by 2008 (Blake et al., 2003):

1 an imperative to create value for consumers and shareholders, faster

2 further consolidation and scale (yet scale alone is not a guarantee of success)

3 a greater need for production and process agility, to embrace technological breakthroughs in vehicle engineering

4 the advent of new disruptive technology in vehicles, and in supply chains

5 accelerated innovation of products and services

6 increasing customer expectation of both choice and value.


2 The methodology

The Case of Hero Honda Motors Limited (HHML) was prepared as it has acquired technology from abroad and has a joint venture partnership with its collaborator, involving active transfer of technology. In addition, a questionnaire survey was undertaken in the Indian automobile industry covering 16 automobile manufacturers and 17 automotive component manufacturers. A total of 152 respondents with average length of experience 16.8 years replied to a questionnaire measuring 25 variables quantitatively. These experts were given working definitions of 25 variables and a set of questionnaires having three parts (because of different scales involved). Only those questions were selected where there was a consensus of 70% or more amongst experts regarding a question measuring a specific variable. Profitability, liquidity and turnover ratio analyses were conducted on three fiscal years' data assuming that after fierce liberalisation in India, the impact on finances was felt from the fiscal year 1993–1994. The questionnaire provided background of the industry context and general market forces, behind the detailed case study we conducted of Hero and Honda working together.

A brief past history of the organisations studied, Hero and Honda, was also obtained to understand their technological backgrounds. Numerous interviews were conducted in both companies so as to understand the perspectives of the decision makers on both sides of the technology venture. The combined methodology covered the following attributes of the technology collaborators: products; market; technology history of the organisation; corporate philosophy; technology strategy; technological strengths and weaknesses; integration of corporate strategy with technology strategy; effectiveness of technology alliance, clarity in technology acquisition; innovation flexibility; flexibility in technology strategy; research productivity; technology waste; resource leverage; relationship with technology providers; technology absorption model and vendor development.

3 HHML: the technological way to market leadership

In the early 1980s, the Indian economy was opening up and foreign companies and technologies were allowed to come into the sectors of strategic importance. Many automobile manufacturing firms were finding their way to the Indian market. TVS-Suzuki, Maruti Udyog Ltd., Birla Yamaha Limited, Escorts Yamaha Motors Limited and many others came into existence in the automobile sector and Honda Motors of Japan (Honda) was also looking for partners with whom to venture into the Indian market. Before Honda started looking for business partners in India, they assessed the transportation requirements of the Indian population masses and anticipated a growing market for two wheelers.

A team of experts from Honda visited more than 50 destinations in India, including major cities, small and big towns, hilly and rocky terrain’s of the country. They gathered the data for technologies, that is, a scooter based on two stroke and motor bicycle based on four stroke technology. The reason for this was that India was predominantly a scooter market, besides there was non-availability of a four-stroke motorbike in 100cc engine capacity category in the domestic market. Honda saw great market potential in 100cc four-stroke technology in India. Fuel efficiency, environment friendliness


(in comparison to two stroke vehicles) and load conditions in urban and rural parts of the country were important reasons that contributed to their decision of bringing out a radically innovative vehicle. The vehicles designed for the other three countries in the neighbouring region to a great deal were not different. But of course modifying an existing vehicle or designing a new vehicle needs massive investments in terms of money and efforts with the other business risks associated with the technology development. These developments happened before Honda entered into joint venture partnership or technological collaboration with any firm in India. After having done this they started looking for a business partner for a four-stroke motorbike venture.

On the other hand, the local Hero Group also undertook a market survey project, almost on similar lines, and the finding of both the studies delivered comparable results.

3.1 The Hero group

Hero group made a humble beginning in 1956 with bicycle manufacturing. The founding father, Late Mr. Dayanand Munjal, laid the foundation of the Hero group with a dream of providing technologically advanced and affordable transportation solutions. Becoming the Number one bicycle manufacturer in the world was the first step in the process. The first group company is known world over as Hero Cycles Limited. It manufactures 14,500 bicycles every day, which are delivered to the customers through a network of nearly 3750 dealers in India and 250 dealers abroad. The second group company was Rockman Cycle Industries Limited, which came into existence in 1961 as a part of indigenisation and backward integration. Continuing with the same process, Highway Cycle Industries Limited was floated in the year 1971. Hero group promoted Majestic Auto Limited in 1978 and Munjal Castings in 1981 to manufacture mopeds and health care equipments and non-ferrous castings, respectively. This was followed by a rapid growth phase of promoting HHML (HHML-a joint venture with Honda Motors of Japan) in 1983, Munjal Showa Limited (a joint venture with Showa of Japan) in 1985, Sunbeam Castings in 1987, Hero Motors (a division of Majestic Auto in collaboration with Steyr Daimler Puch, Austria, which recently entered into collaboration with BMW of Germany), Hero Cycles Limited (Unit II) and Gujarat Cycles Limited (a joint venture with Gujarat Industrial Development Corporation) in 1988 and Hero cold Rolling division in 1990. Starting with bicycles and progressively moving to moped to 100cc four-stroke motorbikes, to 650cc prestigious BMW solutions, the group has 13 companies and 15 manufacturing units to manufacture a full range of two-wheeler transportation options and world class auto components. Today Hero is a popular name in bicycles not only in India but in 60 countries including in Europe and North America. HHML is an undisputed market leader in the four-stroke 100cc category. It is also popular with the name and reputation of a: ‘Fill It, Shut It, and Forget It’ vehicle because of its fuel efficiency and environment friendliness, which are of utmost concern to automotive vehicle producers and users all over the world. The group had also developed two more companies, Hero Exports in 1993, which deals in trading of Basmati rice, garments, bicycle components, steel and wheat in international market; and Hero Corporate Service established in 1995, which deals in management services related to strategic business plans, information technology and project management.


3.2 Technology history of the Hero group

The Hero Group of companies has an impressive track record for indigenisation, exploring economies of scale and scope and product innovation. Their bicycle business has provided them with an opportunity to learn about the changing choices and preferences of customers in different parts of the world. The group’s corporate management has a tradition of keeping in touch with the state-of-the-art technology in their field of interest. They have also learnt to innovate on the existing products to attract the customers who have also helped the group in developing a sound customer base not only in India but also in other countries. In the process of indigenisation and product innovations, the company has strived for developing technology-based products in-house or in the group companies.

3.3 What impressed Honda within the Hero group?

Honda Motors had received 150 applications and short-listed nearly 20 companies in India for a joint venture partnership. The Honda team visited the existing plants and manufacturing facilities of their potential joint venture partners. When the Honda team of experts visited the Hero group companies, they were surprised to learn that the management practices were quite at par with the management paradigms taking shape in Japan.

“The team was quite impressed with the Indian version of Just In Time (JIT) inventory system then practiced in Hero Cycles and other Hero companies. The overall interpersonal relationship between workers and management was another bright spot in the managerial practices. The team was particularly impressed with the open door policy of then group Managing Director Late Raman Kant Munjal, who knew many of his workmen by their first names and also knew a lot about their families. The same was valid for dealers in the marketing set up. The Honda team was also impressed with the productivity of the Ludhiana factory and unprecedented record of quality”, said the Chief Executive Officer (CEO) of Honda.

The same style of functioning has been picked up by Mr. Munjal’s successors in the group. Honda experts found Hero companies practicing the state-of-the-art Japanese management principles and hence found the group most appropriate for a long-term business relationship.

3.4 Technology management at HHML

Hero group believed in the Honda technology, particularly the four-stroke option, and entered into a joint venture partnership after assessing it carefully. “Honda had undertaken a massive exercise to know customer preferences and had concluded that a fuel efficient and cost effective motorbike could be the solution” said the Hero Chief Technology Officer (CTO). As regards the technology assessment, the group thought that Honda was way ahead in automobile technology particularly in four-stroke, and had established its credentials all over the globe. Hero found Honda solutions to be better than other potential technology providers on fuel consumption, emission and durability of the product technology.


As regards technological leadership, Honda is the undisputed world leader in four-stroke motorbikes. The leadership is visible in the market share, customer preference, in meeting the environmental norms and investment in technology. The firm believes that its high market share is largely because of better technology and aggressive, but well thought out marketing strategy. The top management has set the agenda for HHML as continued effort for the development of the motorbike industry through new product development, technological innovation, investment in equipment and facilities and efficient management. HHML sees its core competence in absorbing process technologies.

“HHML is a manufacturing unit which has absorbed the technology very effectively and has modified several process technologies to save cost and also to realize product differentiation. The group management thinks that their core competence lies in effective indigenisation and absorption of technology” said the HHML CTO.

The innovations in process technologies, cost reduction in indigenised components and value addition to the product without extra cost are clear indications of its technology absorption capabilities.

HHML spends nearly 1% of its total revenue on in-house R&D, which is significantly low by world standards, but reasonably high from local (Indian) industry standards. The CTO does not feel that they are starving for resources, but thinks that they get enough resources as needed. At present they are not in a position to absorb more resources because the technology agenda, which the firm has laid down for itself, does not ask for more. A firm needs a solid foundation for absorbing the investments made and yielding the desired results.

A firm needs to develop enough technological capabilities to take maximum leverage from the resources committed to the technology of the firm’s products and process. Capital investment in technological projects involving imports of equipments is discussed in the joint consultative committee, which has given good suggestions on many occasions in the past. Honda experts help in choosing the state-of-the-art solutions. As far as indigenous equipment is concerned, HHML has enough expertise available. HHML had identified certain leverage points where little investment (or other resources) yielded fabulous benefits in the long run. These included testing of all the components that had helped in smooth indigenisation and suiting the product to meet the changing preferences of the local customers.

A larger part of the manufacturing process technology has been supplied to HHML by Honda Motors exclusively. Many precision and intricate parts are manufactured on these machines. Many other machines have been bought from other manufacturers as suggested by Honda. The Production Engineering Department (PED) has evolved process that are more cost effective and quality as well as operator friendly.

It has been a case of active technology transfer in which HHML is banking on Honda for prompt and effective technological solutions. “The ‘CD100’ vehicle after its launch has had many problems but solutions to them have been generated in record time without even letting the customer know about the problem”, said the HHML CEO. All design and material aspects are taken care of by Honda while manufacturing is looked after by HHML.

Technology borrowers always needs sound state-of-the-art testing facilities for analysing the product performance and process characteristics. It is an important step in technology absorption. HHML has developed testing facilities in which 90% of the


testing is done locally. They need to depend on Honda for critical tests for which Honda has developed testing technology, which is scarcely available with other manufacturers in the world.

At the new plant, most of the machines are Computer Numerically Controlled (CNC) and changing of a setting from one model to another takes just minutes. Anticipating the increasing effect of market pull and customers becoming more demanding, small batches of many models will be required in the future. HHML management is technology savvy, having evolved systems to adopt and adapt to new technologies. The chaos occurring because of new technology implementation is reduced to the minimum because of this approach. They form teams and task forces; and then implement very meticulously the structured programs designed by HHML technologists. Their Japanese counterparts also actively support them in these ventures. HHML has been able to develop confidence in their people that whatever new manufacturing technology may be brought in, they will be able to understand and implement. While choosing a new technology, several attributes are considered and cost-effectiveness, of course, is one of the most important ones. The other parameters considered are environment, quality, and user friendliness, useful life, investment involved and helpfulness in consolidating core competencies.

Since HHML is the market leader in this category of vehicles, and technological capabilities are utilised to sustain this position, increasing component/material cost is carefully looked into. Serious thought is always given to accommodate the increased cost by better capacity utilisation, product and manufacturing innovations and rigorous value engineering exercises. Vendors are also motivated to take up innovative ideas for implementation to bring down or maintain the cost and to improve the quality. Raw material conservation, energy conservation and cost reduction in bought-out components are also tried. HHML is an extremely environmentally friendly firm, inside with the process technologies and outside with the product technology.

The Honda and Hero groups’ strategic alliance believes in promoting its corporate image in Indian as well as world markets. They undertake a lot of image building exercises, which are based mainly on technological breakthroughs. They cannot afford to compromise with the technology management function in their respective territories in order to stay as market leaders in the two-wheeler segment of the automobile industry.

As far as product technology is concerned, Honda’s approval is a must for any innovation. The HHML Research and Development (R&D) and Production Engineering Department (PED) have implemented many innovations in manufacturing technology like induction brazing in place of gas-based operations. In manufacturing technology, HHML enjoys full freedom of innovation and can apply its creativity for making it more efficient and cost-effective and for maintaining the quality of the end product.

As to technology waste, there has been almost no incidence in which the technology was developed but could not be utilised. HHML has developed four models so far in the last 13 years of its existence, and all of them have been received well by Indian customers, albeit with different degrees of success. As regards the product technology, plastics are used extensively in many parts of the world in Honda bikes. Through looking to the usage conditions of the vehicles and environmental concerns, plastic components have been used to improve the overall benefit to the customers. Technology waste has been avoided by carefully and proactively selecting the product and process technologies.


In respect of clarity in technology acquisition, the Production Engineering Department (PED) and Research and Development (R&D) group prepare the plans to be implemented in consultation with the Projects division. They work out several options and the advantages and disadvantages of each one of them. The technical director chooses one of them depending upon the firm’s long-term business objectives. The choice of option may or may not be divulged to the planners. The decisions related to technology are not transparent to even top management executives.

The definition of state-of-the-art is different for different people and countries. For example, HHML took a technology that was nearly ten years old and adopted it to the Indian conditions. Now they have developed a capability wherein changing to any new technology or adopting incremental innovations would not be difficult.

“Every time when the MOU with Honda is renewed, new clauses are added to the benefit of both the partners. Similarly old clauses that become irrelevant over a period of time are excluded. For example, earlier only 100cc motorbikes were open to HHML, but now they can manufacture any bike that Honda manufactures. This is a measure of technology absorption capability that the firm has developed over time and the confidence that Honda has shown in their joint venture partner (JVP)” says the HHML CTO.

3.5 Levels of technology absorption

When HHML began to absorb Honda technology, they decided to design an altogether new engine. Honda persuaded them to revise their agenda of technology absorption. The automobile technology is divided into four distinct categories, which are design, product testing, manufacturing and marketing after sales. The first and last categories are classified as soft technologies, and second and third as hard technologies.

“Honda made a point to HHML, that if you start developing an engine now, you will take two years time and even after that you will not be sure whether you will be able to do that or not; whereas Honda can do it in three months time with a high probability of success”.

Similar things were told about the testing technology. HHML was convinced about their strengths in manufacturing, marketing and after sales. However, in design and testing, HHML was assured of full support from Honda. This revision, Honda suggested, was based on their experience in Nigeria, Brazil, Argentina and other places. HHML did very well on these two fronts and absorbed the manufacturing and after sales technologies quite effectively. In after sales, Honda trained people of HHML for maintenance and repair of the motorbikes. As the four-stroke is a sensitive engine, such that if it is maintained well with proper tooling and adequate training, it gives wonderful performance, otherwise it is not able to deliver the desired results. HHML, following the advice of Honda, revised its priorities and concentrated on training of roadside mechanics, dealers and authorised service stations. For rural markets, mobile workshops were introduced. Japanese personnel were not available for after sales service and manufacturing, and, therefore, this was a field left open only to Indians. Manufacturing technology also included, making the product in the same way as has been described in the design and thereby assuring its performance.

Next on the agenda was vendor development and development of testing facilities. HHML does work out design modifications but does not develop original designs. In technology management and particularly transfer, there are two parts, one is


‘know-how’ and the second is ‘know-why’. No technology provider will disclose to its collaborator or joint venture partner the know-why part and Honda does the same. Most of ‘know-why’ is held with Honda Research and Development (R&D), which is a separate firm altogether and it sells its intellectual information to Honda companies and joint venture partners the world over. Honda pays Honda R&D for intellectual information and joint venture partners pay Honda. Hence Honda partners do not have a direct dialogue with Honda R&D. Honda is a fairly open global player but some of the technologies are very closely held.

3.6 Classification of parts

A motorbike has 480–500 parts, which are classified in A–E categories. Category ‘A’ parts are those, which are responsible for vehicle safety and pollution norms. Category ‘B’ parts are directly responsible for performance of the engine. It may not have any thing to do with safety or pollution norms. Categories ‘C–E’ are related to other functions, including aesthetics of the vehicle. In category ‘A’ and ‘B’ items, Honda has elaborate arrangements with its vendors or manufactures them in-house. The problem gets further complicated when one vendor manufactures components up to the mark but others do not and the overall quality of the vehicle gets diluted. The Honda strategy focuses highly on developing technology-based quality conscious vendors. The motivation behind establishing R&D centres in India is to help vendors and the vendor development process.

HHML is at par with Honda in ‘D’ and ‘E’ category parts but still far behind in A, B and C category parts. It may take a few years’ time to match Honda quality in A, B and C category components. HHML looks quite healthy on the ‘know-how’ part but not so on ‘know-why’. The ‘know-why’ part of technology is very crucial in developing core competence.

3.7 Indigenisation: a significant challenge

HHML imports 14% of the components (value wise) from Japan for two reasons. Firstly, the cost effectiveness of those components, that is, HHML’s consumption level of these components does not justify a separate plant for them in India. Secondly, there are some key components whose quality cannot be compromised. When the volumes grow further, vendors may be asked to bring technology from Japan to India and start manufacturing in India. In that case the imports are likely to go down further.

The Hero group has a fascinating history of indigenisation right from the beginning. Hero Cycles Ltd., the first group company, indigenised the imported components quite early and took over the leadership of this industry. The same philosophy prevails in HHML too, as far as indigenisation is concerned.

“Vendors, who have already brought in the technology from other firms abroad and are meeting quality and performance standards; HHML goes ahead and sources components from them. But in case a particular vendor needs improvement in technology then HHML not only suggests but plays a mediator role in getting the technology from the firm which is supplying the same component(s) to Honda in Japan” says the HHML CTO.

HHML is the world number one plant in Honda joint ventures all over the world in level and speed of indigenisation. “Thanks to the local manufacturers and management’s


vision”, says the Honda CEO. It is also the world’s number one plant in manufacturing the base model ‘CD100’ in such a large volume (approximately 1000 motorbikes per day).

The local Research and Development (R&D) team has proved itself to be highly productive in terms of developing new models. It developed the ‘CD100 SS’ model on its own which is a grand success in the Indian rural market. Similarly ‘Splendor’ is another model, which is a roaring success in high-income clientele. Together with Honda R&D, it takes up Value Engineering (VE) exercises, which improve the quality and performance of the products without increasing the cost, so it can also be termed as cost savings in a sense. The CTO of the firm is an international authority in VE and makes use of VE techniques quite effectively and innovatively.

Honda provides prompt backup support for technology related problems and also backup guarantees in international markets. Because of the heavy demand in the local market, HHML has not yet fully explored overseas markets. But with the new plant coming on stream, it will be in a position to do so. Honda Motors is actively supporting the new models that HHML is planning to bring out in the Indian market. One such model has the same 100cc capacity but uses different technology called a ‘Centrifugal Clutch’, which enables the rider to change gears without pressing the clutch lever. At the same time there will be no power transmission losses because there will be no slip in the transmission links. It will give better performance, more safety against failure of the clutch, and high fuel efficiency to the customer.

3.8 HHML compared to industry: a survey of auto industry benchmarks

A survey was undertaken of industry competitor’s views on ten-point scale, on key factors that are determinants of market and commercial success. This survey of 152 Indian automotive executives included eight HHML executives, and provided an overview of the perceived relative strengths and weaknesses of HHML relative to the industry. The surveyed executives had an average of 17 years of experience. The automotive industry executives were chosen randomly and are well experienced and very knowledgeable about the industry in aggregate, and the major players within it such as HHML.

Table 1 presents the comparison of values of 25 variables measured in HHML and across the Indian automobile industry. HHML is way ahead in the corporate growth level of indigenisation, vendor development, effectiveness of technology alliance, success of technology acquisition, equity participation by technology providers (as it is a joint venture), balance and degree of technology push and market pull. The job title/designation and departmental home of the surveyed executives are shown in Appendix. All were from the automotive industry.

Despite its general business success, the survey was instructive in finding that there are numerous domains in which HHML has significant room for improvement relative to industry averages, while it is perceived by industry players to be above industry averages in other fields. HHML needed to strengthen itself on product and testing technology fronts. Deeper direct interaction with Honda R&D is possible. The R&D budget could be enhanced as the firm is in good financial health. State-of-the-art testing facilities should be installed locally to perform all types of testing for 100cc and more powerful vehicles. Import components to be reduced to avoid the effect of Yen price fluctuation on the cost


of product in local market. Market expansion is possible in the countries where HHML has not ventured so far. HHML could exploit economies of scale and scope to improve the volumes and bring the cost down.

Table 1 Values of variables for HHML, compared with automobile industry

Code Variable description

Average optimistic value

(for industry)

Average most likely value (industry average)

Average pessimistic value (for industry)

HHML’s average

1 Technology leadership

8.68 6.76 3.34 6.35

2 Corporate growth 9.15 4.35 0.85 5.18

3 Technology pay-back period

9.15 5.95 2.86 5.78

4 Value of the firm 9.15 7.10 2.40 5.57

5 Capability to adopt, adapt and implement new technologies

8.52 5.70 2.72 5.46

6 Level of indigenisation

9.15 8.48 2.40 9.15

7 Extent of vendor development

9.15 8.06 2.40 6.11

8 Capability to exploit economies of scale and scope

9.15 6.58 0.85 6.11

9 Degree of technology planning

9.15 6.33 0.85 6.27

10 Effectiveness of technology alliance

9.15 6.18 2.37 6.72

11 Research productivity

8.86 6.21 2.45 5.73

12 Technology waste 0.85 2.78 5.80 2.86

13 Investment in technology

7.25 3.58 0.85 4.00

14 Extent of technology development

7.80 5.42 2.25 5.17

15 Success of technology acquisition

6.80 3.95 0.29 4.41

16 Equity participation 5.80 2.95 0.85 3.87

17 Technology availability

5.80 3.88 0.29 2.92

18 Customers’ technology awareness

6.92 4.78 0.66 4.46


Table 1 Values of variables for HHML, compared with automobile industry (continued)

Code Variable description

Average optimistic value

(for industry)

Average most likely value (industry average)

Average pessimistic value (for industry)

HHML’s average

19 Customers’ needs satisfaction

7.41 4.94 0.41 5.14

20 Degree of market pull

7.48 3.54 0.29 4.13

21 Degree of technology push

8.80 4.62 2.06 5.02

22 Conduciveness of culture for making innovations

6.26 3.82 1.11 3.98

23 Strategic flexibility 9.00 7.33 3.44 7.33

24 Technology innovation flexibility

8.38 7.13 2.07 6.54

25 Technology acquisition flexibility

8.27 6.81 1.26 6.17

Note: 1 = lowest rating and 10 = highest.

3.9 Expected performance outcomes

Dependence on imported components was expected to reduce over time. Building core competencies in technology acquisition and subsequent indigenisation in the shortest period of time would allow for HHML to stay ahead of its competition and emerge as the technology leader in the Indian motorbike market.

Dependence on other firms would potential be on for acquiring radical innovations in technology. The smaller step improvements would be totally generated from within HHML, giving it a competitive advantage that would be difficult to replicate in the region. The overall result would be a thorough and complete strategy delivering wealth maximisation through effective technology management

3.10 Synthesis and managerial lessons from and for HHML

From both the survey and the interviews of HHML, Hero and Honda executives, it is possible to construct a set of lessons, which do apply to HHML, and may be useful to other emerging economy companies, which are considering technology strategy and management options such as licensing in and joint ventures. The learning includes.

Technology strategy: in the absence of a clear statement of strategy the firm keeps was ‘hitting in the dark’. Short-term success in the market does not guarantee the robustness of a technology strategy. The top management commitment to building a strategic attitude and view needed to be visible in its decision making process in general, and regarding technology in particular. Quick and effective adoption of the product technology to local conditions, developing capabilities to adopt manufacturing technology, promoting an innovation culture, degree of vertical integration and formation


of core technology groups are a few determinants and critical variables of a sound technology strategy. Technological strategy needs to be derived from the long-term corporate goals and should take into account and integrate each and every component of the technology management function in an organisation. Short-term strategy may emphasise product and process technologies absorption and making incremental innovations on continuous basis, however long-term strategy must clearly indicate the firm’s intention of cultivating the competencies. Firms need to evolve effective technology strategies that can serve their long-term corporate objectives.

Technology transfer: the objective of technology acquisition has an important bearing on the model of technology transfer. If technology borrowers have a sound financial base and want to develop a strong technology base, then long-term collaboration with restricted management control has proved to be effective in most of the cases. Firms with a sound technology base and developed capabilities to absorb technology may go in for one time technology transfer. Firms, which are looking for strong technological, managerial and financial support, and are desirous to become technology leaders in their home country, are going in for continuing and active transfer of technology.

Technology leadership: technology leaders have inherent characteristics as follows: a capability to develop technology on their own, being able to provide technologically superior products, being able to compete at the global level, to be able to afford state-of-the-art technology in the core and allied industries, competence to make breakthroughs and radical innovations and ability to retain competitive advantage in terms of technology. None of the active transfer of technology cases in the Indian automobile industry (including HHML and Maruti Udyog), is significantly exhibiting any of these characteristics.

Effectiveness of technology alliance: the success of joint venture partnerships lies in the faith, which the partners have in the technological and other capabilities of one another. Efforts should be directed towards reducing the dependence on technology providers. Generally the problem arises when the firm grows strong in the local market and starts planning for market expansion. A healthy alliance is one that develops its own strengths and exploits the opportunities it is exposed to without affecting the interests of technology providers in the global market. Management control should be used to strengthen the firm technologically and financially and not for serving only the corporate interests of the technology providers. The HHML joint venture, which works on mutual faith and trust, delivers better results than if it operated under tight control of the technology provider.

Competitiveness: the vision to develop core competencies can keep a firm as front-runner in the race of competitiveness, which, in turn, is based on competitive advantage. A firm substantially relies on technological strength to achieve sustainable competitive advantage. Maruti Udyog Industries (MUI) flourished in a protected market and HHML had no competition in the fuel-efficient 100cc motorbike segments, while the market in both cases was continuously growing.

Economies of scale and scope: market leadership, cost effectiveness and vendor development suffers if the economies of integration are not taken advantage of. Economies of scale and scope have long-term repercussions on technology leadership and can erode the technology base of a firm. Along with technology, substantial marketing efforts go in reaching to a stage where economies of integration can be put to best use. This is an important interface where technology management function interacts


actively with marketing function. Restricting entries of new competitors could also be considered as another advantage of being able to exploit economies of integration. HHML to some extent have been able to exploit economies of scale, but no joint venture in the automobile industry in India, has been able to exploit economies of scope.

Vendor development: effective vendor development brings down the total investment in the automobile manufacturing project and obviously reduces the risk. It also provides flexibility to introduce new models in minimum time. The foreign exchange rate fluctuation effects can also be minimised to a great extent with local vendor development. Volume plays an important role in vendor development activity.

Indigenisation: government regulations should not be the guiding force behind the indigenisation agenda of the firm. Indigenisation process may be looked upon as a measure of technology absorption capability. Low volumes, poor capacity utilisation and higher investment will always reduce the economies of indigenisation initially, but efforts on the global marketing and quality fronts may restore the balance. HHML tried this strategy initially and when the market grew with time, the firm had no difficulty in stretching its production capacities.

Technology waste: an improved capability to adopt and implement new technologies refines technology absorption skills and helps building technology development potential. This also helps in improving research productivity and minimises technology waste.

Equity participation by technology provider: this factor makes the commitment to commercial and technological success distinctly visible for technology providers in the joint venture. A clash of interest in global markets can be avoided by exercising management control effectively. Active transfer of technology calls for organisational changes at macro level and work culture change at micro level. Japanese work culture has also been injected in this organisation that has helped the firm in developing its innovation culture.

Customers’ technology awareness: customers’ technology awareness improves with availability of technology and increase in competition. A strong marketing set up not only helps communicating the technological features of the product to the customers but can also contribute in developing solutions for market niches, which can subsequently grow into market segments.

Active transfer of technology in the Indian automobile industry has had mixed experiences. Joint ventures, which have come into existence as a result of technology transfer arrangements, have had tough times initially, but lately most of them are showing impressive financial results. An attempt to assess their technological health has revealed that they have a long way to go. Active transfer of technology has reduced the dependence on technology providers but only in a limited domain.

The brightest spot that we came across during the course of study was enthusiasm in the people working in this organisation for absorbing the state-of-the-art technology and innovating on the borrowed technologies. But absence of technology strategy, technological mission and vision, and lack of faith and support from top management are slowing down the process of technology adoption in the Indian automobile industry at large. The emphasis has been on developing core products and does not seem to be on cultivating core competencies. A strategic shift in the attitude of Indian automobile giants is now called for if they have to emerge as global players in the world’s most competitive.


4 Learning from the case and survey

The HHML case study interviews and the background survey done to benchmark HHML against the industry yielded a number of learning points, from which companies in other developing economies can adapt and learn:

1 In the absence of clear-cut technology strategies, most organisations are heading towards an environment of uncertainty and hence are compelled to be reactive in their approaches to technological changes. Technological leadership is not expected from those organisations, which do not have appropriate emphasis on the technology management function. Market pull is more dominant and usually more successful than technology push. In general, Indian firms were not strongly nor effectively planning their technologies for future survival, growth and development. Lack of understanding of strategic technology management can lead to exploitation by technical collaborators over the course of time.

2 HHML, the sample firm in this case study, did not take up the exercise of technology forecasting and technology scenario building on a long-term basis. In view of shrinking technology life cycles, the need for incremental innovations was appreciated at HHML, but dependence on technology providers was seen as a formidable obstacle in the long run.

3 As a result of indigenisation, massive vendor bases have been created while in-house manufacturing is still dependent on technical collaborators. Active technology transfer cases were quite successful in the formal joint venture.

4 There is a mad rush for technology transfer, and even old technology has been imported which may yield rich dividends at least on a short-term basis in emerging economies.

5 Technology transfer need not be only one sided, but it can be two-sided or even multisided.

6 Technology planning can reduce the time required for taking technology from R&D to manufacturing and therefore can provide technological and cost leadership in the market.

7 Continuous incremental innovations can maximise the opportunities for market pull.

8 HHML, with a high level of indigenisation and technology absorption achieved strong corporate growth.

9 Active transfer of technology has helped HHML achieve effective absorption of process and testing technology. Indian counterparts are still banking on technology providers for product innovation and development.

10 Active transfer of technology cases are still in the handholding phase when it comes to exploring foreign markets.

11 Long-term collaborations have proved to be more effective in cultivating competencies in development of product and process technologies.

12 There is no dearth of talented, creative and hard working people in the Indian automobile industry but the innovation culture in these organisations still has a long way to go before it makes use of their capabilities, as evidenced by even leading firms such as Hero and HHML.


13 Indian automobile component manufacturing industry has developed in a big way, which has paved the way for the entry of several automobile-manufacturing firms.

14 Component manufacturers need to concentrate on economies of scale and product quality. Flexible technology options seem to be more suitable for them but low-manufacturing volumes are a big problem.

15 The Indian automobile industry is following the policy of having thin vertical integration. This has lead to the development of an excellent vendor base. High degree of vertical integration has been slashed by the firms, which came into existence when there was no vendor base available in the country. The firms, which could not do this are finding it difficult to face the competition now setting in.

16 Effectiveness of technological alliance largely depends upon the attitude of the technology provider to help cultivate technology absorption and development capabilities.

17 Capability to adopt, adapt and implement new technologies is crucial not only for the survival in the competitive environment but also for making incremental innovations and to logically graduate to adopt technological breakthroughs.

18 Emphasis on technology development is clearly a missing link even among the industry leaders in India.

19 The process of developing a strategic attitude has taken a back seat and has been unrelated with exploitation of economies of scale and scope to a great extent.

20 Emphasis on technological performance in the long run has been the crucial factor for the sound financial health of a firm in the Indian automobile industry.

21 Delays in indigenisation of product and absorption of process technologies can cause long-term survival problems for a firm.

22 Production volumes are crucial for competitiveness, vendor development, indigenisation, absorption and parametric research.

23 Top management’s commitment for formulation and implementation of technology strategy is of paramount importance.

24 Every component of technology management must have a separate strategy to provide clarity on the firm’s present and future agenda. Yet the components should be reinforcing of each other (see Figure 1).

25 Technology management function needs to interact with manufacturing, marketing and information technology functions on various fronts.

5 Concluding managerial and strategic implications

The following contains suggested actions and strategic implications for the automobile industry of the developing countries in general and India in particular, based on the lessons from the HHML case:

1 make top management’s commitment to technology function visible and communicate it across the firm, the industry and the nation and

2 evolve an unambiguous technology strategy.


All the firms in the industry need to acquire state-of-the-art testing facilities. The time is ripe for expansion of authorised testing centres to be located in more than one place.

Strategic alliances need to be developed among the local firms for developing technological strengths. This may go a long way in having a competitive advantage over the firms from other countries. A few firms in India have grown big enough to have their own dedicated research centres, but they should not forget that it is an age of collaborative and consortium research. Small firms can pool resources for R&D activities.

A corporate culture which has fascination for technology needs to be cultivated in the firms. A culture that handsomely rewards creativity and innovation capabilities of the people need to be developed. The emphasis should be on building a strategic attitude in the technology management function.

Return on investment on technology needs to be worked out on a long-term basis. Build a strategic architecture for cultivating core competencies and focus on

long-term objectives while balancing on short-term advantages. Every action must lead the firm to long-term competitive advantage.

Identify and carefully omit the intermediate steps in order to cut down on technology absorption cycle time. Intelligent leapfrogging has become the order of the day.

Creating an innovative knowledge base on the related areas of interest to the firm could be crucial for a technology leader firm. There could be centralised information system for technology monitoring. Sources of latest information on technology fronts could be trade fairs, research journals, seminars, symposia, conference proceedings, plant visits, people and of course literature available on the internet.

Expand by way of making headway in foreign markets without losing focus on the domestic market. Success in domestic markets is crucial for better market performance in the foreign market. Component manufacturers can use the developed countries for supply of original equipment and spares.

The technology strategy should be formulated in terms of the important components technology development, technology acquisition, technology absorption, indigenisation, technology innovation, technology phase-out, technology transfer, technology commercialisation and investment or divestment at the appropriate moment.

Acknowledgement

The author R.D. Pathak would like to acknowledge the facilities provided to him as a Fellow by the Department of Management, The University of Melbourne, Australia.

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Appendix 1

Respondents designations

Designation description Number of respondents

1 CEOs 8

2 CTOs 23

3 Chief Production Officers (CPOs) 13

4 Senior General Manager (Engineering) 3

5 General Manager (Technology) 14

6 Deputy General Manager 4

7 Assistant General Manager 20

8 Senior Manager (Technology) 24

9 Manager 18

10 Deputy Manager 9

11 Assistant Manager 5

12 Senior Engineer 7

13 Did not mention 4

Total 152

Department break up of respondents

Department description Number of respondents

1 R&D/Engineering 44

2 Product Engineering/Product Development 11

3 Manufacturing/Production 60

4 Vendor Development 2

5 Marketing 12

6 Corporate Planning 3

7 New Projects 10

8 Quality Assurance 3

9 Did not mention 7

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