cose I8

The Hondc-Ycrnohc War (A)*

Yamctha has not only steppecl on the raiL of a tiger, it has ground
it into
the earth. Yamaha wo tsubusu! [Crush. break, srnash, squash,
bucher,
s

latLg ht e r, de

-Battle,7

rolt

Yatnaha

iss,ed by Honda's prcsident Kawashima, Januat-v I9g2.l

What had Yamaha done that caused such a violent reacrion from Honda's president
Kawashinla? The explanation begins in the early 1950s when there
were 50 competitors
tighting for position in the Japanese motorcycle marker. Demand was growing
,t"udily ot

over 40Vc per year. Honda was the number two competitor with a
market share of 207r. Its
was Tohatsu, the number one mororcycre manufacturer with
a 22 percent mar(,,.,Irh.rnrry
ket share. By most rneasures, Tohatsu', like the Shoguns whose military

might allowed them

to rule supretne, dominated the .Iapanese motorcycle landscape, Tohatsu's
after-tax profits
were 8Vc ol sales compared with Honda's 3.4Vo.It's debt-to-equity
ratio was 1.5 to 1, whiie
Honda's was 6 to l.In 1955, the widely held view of tire compeiitors
rn Japan's financial
community was:
Tohatsu: With Honda. one of tire two largest motorcycle manufhcturers.
However, it
is considerirbly more profitabre anci its frnancial condition is superior.
Honda: Hish growth contributed to Honda's market share, but overexpansion
deteriorated its flnancial condition because of excess borrowings.2

'rThis case *'as preparerl by Research Assisrant, Sonali Krishn::r, under:

the dir.ection olAssociate professor J. StewBlack. as rhe basis fbr class discussion.

lrt

I
Richard wirrger' "Fast Means Tough in the 90s." Tlrc E.rec'ur ive Speake
lKuirhu-Yoron (Conrpany
Handbook) (Tokyo: Diamond, March I 956),

306

r,ol.

I I , no. ,3

2 I 2- I 3.

(March I 990): L

307

The Honda-Yamaha War iA)

However, in the space of five short years, Honda emerged as the undisputed leader of
the Japanese motorcycle industry. Tohatsu took a more conservative approach to the competitive battles in Japan and grew at a slow and controlled rate. From 1955 to 1960, it did
not significantly increase production capacity. Honda, on the other hand, fought aggressively and grew at 66Vo per year in a market growing al42Vo pef yeal. In dorng so, Honda
established a "winner's competitive cycle." High growth 1ed 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 inlernally 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 heavily. Although these borowings
canied high interest rate penalties, they were critical to Honda's expansion and growth. As

complacent competitors such as Tohatsu lost ground, Honda's protits increased and it
became even more aggressive. Tohatsu's market share dropped to less than 47o while
Honda's soared to 44Vo.In 1960, Honda reponed an after-tax profit of 10.37c of sales while
Tohatsu registered losses of almost 87o of sales. Honda's balance sheet had strengthened
and the company had a debt-to-equity ratio of I to l. Tohatsu's balance sheet deteriorated
with a debt-to-equity ratio of 7 to I as it borrowed to offset losses. With market growlh
slowing to 9% per year, this new competitive positioning appeared to be permanent.
The financial community in Japan. somewhat belatedly, reassessed its opinion of the
two companies:
Honda: It has the largest production capacity for motorcycies in the world, and is still
aggressively expanding production at its Suzuki plant. Rapid growth is expected in
both domestic and overseas markets.
Tohatsu: Business has been deteriorating because of intense cotnpetition. The company is currently being restructured with the support of Fuji Electric.3
Final1y. in Februar-v 1964, Honda's enemy was destroyed. Tohatsu filed fbr bankruptcy. Its saies had decreased sharply, its funds were exhausted, and its bilis were unpaid.
Tohatsu had fallen from number one position to bankruptcy in less than 10 years. And it was
not the only casualty; other motorcycle manufacturers aiso went bankrupt or exited the
industry. The original 50 manutacturers had shrunk to 30 by 1960, 8 by 1965, and by 1965
to four-Honda, Yamaha, Suzuki, and Kawasaki.
Honda's battle for market share is a ciassic example of aggressive kaisha or Japanese
corporate racrics. Like Shogun generals.of the past, kaisha executives battle ferociously for
territory and the right to proclaim themselves iclziban or number one in the country. The
winners seemed to be those kaisha that, like Honda, get the winner's cycle going lor thernseives by boosting their share of the market faster than their Livals. To lose in this battle
often meant corporate deatir, and this was the fate Tohatsu suffbred. Hence, in this coirmercial equivalent of jungle warfare. kaishc executives sharpen their strategic thinking and

competitive skiils.
Over the next ten years, as a sharply growing number of Japanese became more interested in purchasing luxury goods over durable goods, growth in the Japanese motorcycle
industry sio$'ed: Honoring the rule of the kaisha to never rest on your laureis, Honda diversified into auromobiles. To reduce the risk of failure, the company deployed its strongest
fbrces in the automobile venture. This meant that all available cash and tecirnical capabilities, along rvith the best troops, had to be directed toward the automobile business. Honda's
high tevel of investment in the auto industr,v had to be supported by the resources and cash
3

Koirho-Yo rnu tCompany Handbook). 233-34.

308

chapter 14

competitive strategy and the rnternationar

Business Environment

generated from its motorcycle

business. At the end of the 60s, Honda,s
share of the Japan_
motorcycle market had reached 657o.
Despite efforts by the powerf'ul Ministry
of International rrade and industry to persuade
Honda to get out of tire automobile business
merge with one of the much larger
or
car makers ,uJh u, toyota or Nissan. the
company
ignored this "administrative guid*ance"
and, by I975,was obtainii1g more revenues
from
autos than
ese

from motorcycres. profits continued

trnueq to soar and its
its balance sheet steadily

strengthened throughout the

1970s.

As Honda began focusing on the automobire

front, yamaha
,
attack and take terriiory in the riotorcycte
market. However, .urrr.r,TJ;:#Tff:lt",i:
out direct assault on Honda's motorcycre
troops. yamaha borrowed a chapter
from the
ancient Ninia warrtors and decided
to launch a_sneak attack. It began by q'ietly
increasing
its motorcycle production capacity in
Japan. yamaha took advaitage of the
fact that its
enemy's attention was tbcused on
its automobiie business, and began gnawing
away at
Honda's market share' Honda's production
share declined from rtrl"* of 65vo to
40vo by
1981' In contrast' Yamaha increased
its share from less than l0 p".in, in the
mid- 1960s to
by te8l. Basically, rhe territory that Honia
tosr wenr directty

l?Hjr:t_il::::,

inro

By the end of r9gl, yamaha and Honda

had nearry equai shares ofthe
motorcycle landscape'

Japanese

Honda's domestic market share in n-to..y"t",

had declined to 3gvo
whileYamaha's had risen to 3Tvo.yamahawas
within-reach of loppting Honda as Japan,s
market leader and proclaiming itself
ichibctn the worrd's nu*u"r-o* motorcvcle
producer.
The sentiments of yamaha'r top g.n".ui
are reflected in the folrowing quotes:

At Honda' saies attention is focused on

four-wheel vehicles. Most of their best
peocompa."J to u.,",n, our specialty

ple in motorcycles have been

transferred rinto carsl.
yamaha

at

is mainly mororcycle production.

-yamaha's

president Koike,
1979.

If only we had enough capacity, we could

beat Honda.

-Yamaha's
During this period, yamaha's

presidenr Koike.
19g1.4

proritabirity compared i-avorabry with

Honda,s. Borh
companies had operating profits of
about lvo to 10vo of sales in thglate
1960s and about
370 oisales in rhe earr.v I9sOs- Hondr's
p."nr^niii,v;;;r;r;
in pan by its hea'y
investments in R&D for its young
uuto buriness. Its R&D expenditures
increased steadily
from approximately 2va of saresin 1970
to 5vo in 1983. yamaha spent slightly
more than
17o of sales on R&D throughout
the endre period.
Yamaha was abre to push into Honda's
territory and capture market share by focusing all of its resources on motorcycles
and relatecl products. The first phase
ofyamaha,s battle plan, the Ninja-rike-sneak attack
of quietly inc.easing capaciry una u"ing
able to suppry
dealers v','ith more prociuct quicker
thun gonio, had been ,u...rrtul. The
seconci phase of
Yamaha's strategy invorved a rnore
direct- frontai attack. In the earry i970s, yamaha
had
about 18 different products in its product
rine cornpared to Honda,s :s. ey r9gr. yamaha
off'ered 60 moders compared to Honda,s
63. Arthough, in the early 1970s, Honda
had inrro_
duced fwo new modeis on the market
fbr every one introduced by yamaha, in
yamaha
rgg
r.
introduced l8 modeis to Honda's 17.
Indift'erent to this clirect attack by
Yamaha on the motorcycle front, Honda
conrinued
to exhibit a preoccupatlon wi{r autos
as it began investing in iarge-scar. auromobire
pro_
ducrion in the Unired States. By l979,Honctihad
more than gl billion invested in auro_
mobile and motorcycle production facilities
in Marysville, oH. Most of its prodLrction
was
devoted to buiiding the Honda Accord
bur some capacity was also direcred toward
manu_
facturing large "cc" motorcycles.
lNihon Kei:ai
Shintbrut.Julv 28. 1979,

pp. 7.

The Honda-yamaha War

(A)
309
Despite yamaha's massing of
troops on the motorcycle front,.Honda
did noi seem ro
be significantry redeproying itJtroopr;;;;.r
ro p.o,"., ii,i"r;^t*". flank. yamaha
rnterpreted this as an unexpecred
chance to strike ani gain .";;;;;.;round
on Honda. As
a resurt' in Iggr, totaily disregarding
,r", p*rru"r."..ono*r,,,yamaha
the aiuut
or".
embarked on a breakneck productionipree
In August 19g 1, yamaha announced
plans to construct a new motorcycre
facrory with
an annual capaciry of one million
units. This fu.to.y wourd increase
irs
totar
capacity
to
million

four
unirs' exceed'ig_T"10,"'r
l"p.".i,v Lv]00,000 units. If the n"* tu",o.y,, torar pro_
duction were sold in Japan, yamaha's
aor.rii. market rr,ur. *ouia approach 607o.The
opening of the new factory wourd
shift the balance of power and make yamaha
the worrd,s
largest motorcycle manufacturer,
trr" pr.rtigio* position that
Honda had won from Tohatsu
and held for alrlost 20 years.
The difference berween us and
Honda is in our abirity to supply.
As primariry
you cannot expect us to remain
in our present number rwo

;ffiH?J.Sproducer'
-yamaha's

il;:J:i:-e

w'i

president Koike
announcing new facrory plans.
Augusr rggl.

be the domestic reader, And

in rwo vears, we

president

-yamaha's

with

will

be number one

Koike at a shareholders,meeting, January

rgg2.5

these words, president Hisao

Koike raid

down the charenge and pubricry

launched Yamaha on a heady campaign
," t".i"r, H.o|da. Koike anticipared a
quick. decisive victory' yamaha n"o,::{"r:o
tr.. rp"ir^Jirrard fought uunr", uni
rrad seen irs sares
increase z,vo in 1982 to vsie
oiiiion.;;;.;;^^ profits aiso hit a record high
y t5 bil]ion.
of nearry

i","*1'i$1i.1:,Tx:Tffi

:ffi l;:lk J;:::#lJffi u*.ff [.*t"i"[fr LT;H:

prepared to invest heavily in

motorcycles. Bur yamaha invested
u,
intemar cash generation could,rpp*.

A;

iur" tar higher than its

;;;;;;;;;;;;;;";;#"to,'.,ur"

up rhe dir_
t-erence' its debt burden increasc
iteadiiy. Arthough ir was as proi-itable
as Honda, yamaha

;:i#:,f,'l:T:,:::lif,:fi

had a debt

io-;;l;;

ratio oralmost 3 ro 1. wh'e the

Honda

"""0i-1'f.T*."#rT-:1:Tr;r,Ti;i:F,::lTiil:Tff
I am president of this to*puny r" *iii
,uo.nd",

Jong as

ff :ff

t"ff :n:lil

our number one spor lin motor;he late r960s until recentty we
have con-

cyclesl to no one'" rn 1979, ne aomined,

"Fr;
centrated our eiTorts on product
development oiiou.-rt.r..r vehicies.
The tact that another
Imotorcycle] maker coulcl. puti so crose'to
;;";;;" unavoidable siruation.,,
But when the words of Koike's
,ro,.,n.n,, at the yamaha sharehorders,
meedng
reached the ears of Honda,s presiclent,
fr. ,or

in."nr"O.

Yamaha iras not only stepped on

the tail of a dger, ir has

Iffi:i:,i''

-eround it into the earrh.

tsLrbttsut' fCrush, break,
smash, squash, burcher, sraughter,

destroy

-Bartre

cry issued by Honda's presidenr

Kawashima, January Igg2.6

::il::,,:il::r'i,::"iilJ::::,i:T;
":::"Tjdi{T:::?J:ii:iTiqi:i;,fi
iiom 35 percent

percent while Yamaha's decreased

5

Sttukan Trlto Keizai, July Zg. 1979.

pp.
6Richarcr
winger' 'Fasr iVleans Tough

to 27 percent. Honda gained more

.t
.

in rhe g0s.:'

Trrc E-racurive Speaker,vor.

|.

no.3 (March lggo): r.

310

chapter 14

Competitive strategy and the lnternational

Business Environment

ground and increased its domestic

market share from 3gvc to 43vo whileyamaha,s
collapsed from 37 percent to
23vo. Honda,s simpie and innovativ".ounr..u,,uck share
funded by the company's auto division
*rrl"i L.o"grrt in two-rhirds of the company,s was
(Honda's total revenues. ex.ceeded y2
sares
triilion), and continued to prosper during
the motor_
cycle war' The strategy included
massive p.ic" cuts ano increases in promotional
fund.s
fieid inventories' At the time of the
h.oui"ii .o*petition between ttonou and yamaha, and.
prices for popular models had
retail
fallen uy ,nor"-rr-,on a third. tn tir. run,n.r
of r9g2, it was
possible to buy a 50 cc mororcycre
for ress rhan rhe cosr or a r o_rp..J ti.y.t..
About T 5va
of all Yamaha models were smalier
than 700 cc and sold domesticaily
,oi,ii" iu Iarger bikeswefe exported to overseas-markets.
In spite of
heavy air*"r,,ig,'gonda was
abre to
provide products to its deaiers at
.this
costs tirot.nuil.athe
dearers ro earn profits that were
10vo
higher than rhe profits they could."*
bt ;il;g yamaha mororcyctes.
The innovative elemeni of Honda's
counterattack was the use of product
variety as a
weapon' Honda devoted considerabte
resources toward ne,.i, mooei design
and
;:;::H:
Changes in product Line

New
Models
1981

Discoitinued
Models
l QAt

982-83

Yamaha

i8

34

Honda

17

Q1

a.2

JI

,T". C. ,Abeggren and ceorge Srajk, rr., ,,The

?_o.1::,
com petitor": ba
d): s
#i;i;::':,::1"^1'l:n-*
ment Review, vol. 28, no. :
isp.ing

iii'i;'

f SAO),

ia.

"

"

The effects of Honda s two-pronged

attack of new model proliferation
and price cutting were devastating for yamaha.
NJ

;;; inrroducrions offered grearer technicar and

desi'gn appeai to customers' thereby
increasing demand, and deaierls had
incentives for
pushing them. But increased vorumls
of new models came at the expense of
oider ones;
the iife cvcles for existing modet's
*ere shortened and demano for them

,H;1;,.

ciecrined

Yamaha's sales of motorcycles

piummeted by more than 50 percent,
and the comfany
incurred heavy losses. By early 19g:,
vrr*rrlt
unsord stock of motorcyclbs in Japan
were
estirnated to be about half of
the industry ,oiut
unsoid stock. Ar rhe rhen-currenr yamaha
sales rate, its inventories were
"r
equivaient to about one year,s sares.
The onlv way ro move
stocks was to forrvard promotional
funds to dealers and allow cuts in prices.
But yamaha
could nor afford to do this and even
.onria.J a scrapping progru, io, unsoid mororcy_
cles'Yamaha'sdebt-to-equityratioin...ur"Jtiomiessthanl',o

fin tggr roTto r in

in contrasr, buoyed on by iis.on,inuo.o'r;;;.r,
in automobiles. Honda,s balance
neC funher

_eai

srrengrh.

19g3.
sheer

The Battle for Marketshare

Production in Million lJnits (Domestic

Market Share in %)
1

980

'1

001

Yamaha

2.24 (35)

2.79 (s6)

Honda

3.09 (4s)

1982
2.66 (s3)

0.82 (29)

3.59 (39)

3.64 (46)

2.61 (4s)

Source: Frnanclal fimes, November 16,

1gg3.

1oat

Jonda-Yamaha War (A)

311

The Honda-Yamaha rivalry pushed i982 rvoridwide inventories of

Japanese motorcycle makers to more than 2.5 million bikes, and alarmed the US manufacturer
HarleyDavidson. Hariey worried that this excess invenrory would be dumped
in the US

market.
,,vhich historically, had taken in about 20vo of
Japan's output. In april 19g3, Harley_
Davidson persuaded the US International Trade Commission (ITC) to give
lt import
protection.

Frankly, we were scared that nationwide fire sales would spell the death kneil
for
HarJey.

-Harley-Davidson

spokesperson, July 19g3.2

President Reagan approved a recommendation by the iTC, raising the initial

import
tariff on heavyweight motorcycies (with engine displacements over 700 cc.) from
4.+% to
49.4vo. The ITC's recommendation was based on its finding that imports
of heavyweight
motorcycles posed a "threat of serious injury to the domestic industry.,'S The
ITC defin"ed

domestic industry to include any producer assembling motorcycles in the

US. This ruling
was another lost battle in a war that yamaha feared might speii its end.
In Januarli 1984, Yamaha's parent conpany Nippon Gakki, which had a 39.rvo
stake
in Yamaha, called for an emergency board meeting. The company could no
longer hold the
fort. A new strategy had to be developed urgently. The board members pondered
over their
options:

1. Make turther drastic production cuts.

2. Publicly apolo-qize to Honda and carl for a truce and "cease t'ire."
3' Expand into new overseas markets and set up offshore production faciiities.
4. Dump excess output into established overseas markets such as the us.
Dlastic action was needed in part because losses atYamaha ror 1984 were
esrimated

ro be Y

i9 billion.

BIBLIOGRAPHY
ABEGCLEN' Jaues C. and

GsoRcr staLr,

JR. "The Japanese

nin Management Review vol. 28, no. 3 (Spring 19g6) g_21.

Corporarion as Competiror.', Califor-

"Altitude sickness on wall street." The Financial ritnes, ocrober 13, 19g3, 20.
'A Burned outYamaha Pulis in for an overhaul." Bu.yiness week, JuIy 11. 19g3,41.

N. "Economic Darwinism." Forbes, october 6, 19g6, 52-56.

G. "zen and the Art of cyclemakers.,' fttrbes, April g, 19g4, l5g- 160.

CuaxRevp,ery sunnnra
Fi-aNeceN.

Gnerur'

wrr-lrev

Allsoru' "Budding

June .1. 1990.

Technology Speeds Products to Market." Unitecl pres.s l.rttenturiortrtl,

Nihon Keizai Shimbun, April 2, I 985, 2l .

Sr'qlr, GEonce JR. "Time-The Next Source
Reuier, (July-August, I 988).

of Competitive

Advanta-ge." Hcttt,tttrl

Bu.s,ines.r

"To Sutvive Low Pressure Consumer Economy: Producers Need

to Exactly Size up Chnnging, Diversified Demand Trends." Nifu;n Keieai Shinbtut, Augusr 9, t9g3.
"Yantaha Retrenches After Its Costly Banle Against Honda. the,Top lvlotorcl,cle
Maker."

./ountul, July 7, 1983.

TBob woods, "Wheeting

& Reeling," S&MM, May 16. 1983, pp. 43-50.
SHeavvvveigltt Motottvcles trnd

Wtll

Streer

Engines and Powerrrain Assentblies ThereoJ, Reportto the president on Investigation N. TA-201-4'7, USITC Publication l342,February .t9g3. pp. 1.