Honda

case 18

The Honda-“Yamaha War (A)*

306

Yamaha has nor oniy szepped on the mi! of a tiger; it has ground it inro the earth. Yamaha we tsabusu/ [Cr-ash, break, smash, .vquash’ butcher; slaughter; destroy Yamahaf]

. . m,» u“, guugLlllS wnose military might allowed them to rule supremé, dominatsd the Japanese motorqycifi landscape.- Tohalsu’s after-tax profits were 87% of sales compared with Hqnda’s 3.4%. It’s debt-.gmequity ratio was 1.5 to 1, while Honda‘s was 6 to I. In I955. the widely lgeidvi'ew' of {11¢ competitorsin Japan’s financial community was: " l

casc was p'rEpz-lrcci by Assistant, Sonafi Krishna, under the direciion ofAssociatc Professor}. Slewart Black. as the basis for class'discussion. I

IRichard Winger. "Fast Means Tough in the 905." The Speaker. mi, 1 I, no. 3'{March 1990): l. (Company Handbook) (Tokyo: Diamond, March I956). 2 12,13.

The Honda-Yamaha War (A) 307

However, in the space of five short years, Honda emerged as the undisputed leader of

the Japanese motorcycle indus_try. Tohaisu took a more conservative appmach to the com

petitive battles in Japan and grew at a slow and controlled rate. From 1955 to 1960, it did not significantiy increase production'capacity. Honda, on the other hand, fought aggressively and grew at 66% per year in a market growing at 42% per year. In doing so, Honda estabiished a “winner’s competitive cycle.“ High growth led to greater sales revenues and decreased costs through economies of scale. With increased revenues and decreased costs came increased profitability and financial strength. More cash was available internaily and from external sources to fund growth. This cash was reinvested in the business in ways that yielded further increases in market share and a replay of the “winner‘s competitive cycle.“

To wage this aggressive battle Honda borrowed heaviiy. Aithough these borrowings

-- carried high interest rate penaities, they were critical to Honda‘s expansion and growth. As complacent competitors...