Honda kick-starts vendor recast

CHENNAI: Japanese auto major Honda may reduce its dependence on Munjal-family owned component companies which currently supply parts to both Hero Honda and Honda Motorcycle & Scooter India (HMSI).

Following its separation with Hero, Honda is restrategizing its vendor policy to build its own supplier network independent of the Hero Group in India. Sources in the auto industry say Honda is doing this both to derisk its business model and for intellectual property issues.

In an email response to a query from TOI, Takashi Nagai, head, south west Asia, Honda Motor Co, said: "We are currently in the process of reviewing various aspects of our two-wheeler business strategy, including supplier network, dealer network and other functions. However since no concrete decisions have been taken yet, we are unable to share any specific information as of now."

Sources say Hero Honda has five vendors as joint ventures or associate companies, from which it gets the bulk of its components. These are Munjal Showa, AG Industries, Sunbeam Auto, Rockman Industries and Satyam Auto Components. In all, it sources components from over 300 suppliers. Many of these Munjal-family owned component companies also supply to HMSI, Honda's 100% subsidiary in India.

When contacted, Hero Honda maintained that for its part it will continue sourcing from Honda subsidiaries as long as it makes business sense. "The amount of business that Hero Honda gives its vendors is phenomenal because motorcycles is a volume game," said Hero Honda CFO Ravi Sud. As an example, he cited the case of carburetor maker Keihin, a 100% Honda subsidiary. "We source 5 million units from them every year," says Sud. When asked if Honda is likely to shift sourcing loyalties, he said, "All transactions with Munjal family-owned component companies are at arms length and they get no preferential treatment".

Honda's decision to build its own capability in sourcing is understandable. After it centralised all parts sourcing in India under Honda Motor India, Honda repeatedly requested Hero Honda to join the umbrella company. But the latter resolutely refused. Following the split, Hero Honda has announced it will build capability to develop and launch its own range. Honda for its part wants to build strength in the area where Hero is the strongest -vendor sourcing and distribution-given that it is planning to launch a 100 cc bike in the Splendor/Passion category soon. The Hero group itself has carved out its businesses between family members as part of a family settlement. While B M Lall and his family now own Hero Honda others like B M Lall's brother Satyanand Munjal's son Yogesh Munjal controls Munjal Showa while Ashok Munjal, son of late Dayanand Munjal, BM Lall's older brother, controls Sunbeam Auto.

When contacted Yogesh Munjal of Munjal Showa told TOI: "It's true there is no assurance from Honda (on continuing the sourcing relationship after the separation) but there's also nothing to the contrary to say that the relationship with HMSI will not continue."

Auto analysts believe that with a full-blown head-to-head competition in Hero Honda's bread and butter 100cc segment right round the corner, Honda may not want to depend too much on Munjal family owned companies. However, any dissociation will take time given that Hero Honda dominates most of the vendors in the two-wheeler business right now. "Honda will take time to build its own supplier network and till then they will need to depend on the current vendors," says a principal with a Delhi-based MNC consultancy firm.