Hero Honda to Form JVs with parts makers

Hero Honda has chalked out a new business strategy to take on competition in the highly competitive two-wheeler market once its split with Japan’s Honda Motor Company is complete in 2014.

The Munjals-owned Hero group, which is going to acquire Honda’s 26% stake in the company, has decided to form 4-5 small JVs with certain auto ancillary players. For instance, it is in talks with Austria’s AVL, and UK’s Ricardo for a transmission JV. Similarly, with Italy’s Cosmo and Engine Engineers, the company is exploring JVs for body contouring and power train respectively. Once formalised, these JVs would function as Hero’s subsidiaries.

Sources said this would form part of the Hero group's strategy to meet its immediate technology needs once its pact with Honda expires. A decision to this effect was taken at the company’s board meeting in January, where it was unanimously agreed that the company could only fast track introduction of new models in the market if it partners with auto ancillaries.

An email query sent to Hero Honda did not elicit any response. Following Honda’s exit, analysts have maintained that the Hero group would have to quickly identify a technology partner to be able to upgrade its emission norms to Bharat Stage 4, which would become mandatory for two-wheeler manufacturers by 2015.

According to the understanding between Honda Motor and Hero, the latter has the option of sourcing technology from Honda Motor even after 2014 but in that case it will have to pay royalty on that. The Hero group is therefore trying to build a technology base of its own through partnership with certain firms so that it does not have to go for the option of sourcing the same from Honda.

Meanwhile, the Hero group is expected to complete the re-branding exercise of the company by the end of the current year. It is finalising its export market strategy as it is eyeing new markets like Africa and Latin America. It is also looking at Passion and Splendor as the models for the export markets initially. The Hero group is also revisiting its corporate strategy. While the company has lined up plans for exports under a new brand name, it is also looking at entering new product segments. As part of this strategy, Hero would first enter the three-wheeler segment and later launch small four-wheeled commercial vehicles. This would bring Hero in direct competition with Bajaj Auto.