Last Updated 26 Jan 2021

Honda and Hero Group

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Ancillarisation and Sub-contracting in India started simultaneously with the Govt. setting up enterprises almost in all the core sectors viz. manufacturing equipment for Defence/ Railways/ Telecommunications, Heavy Electricals, Electronic, Chemical, Fertiliser, Petroleum/ Petrochemicals, Ship & Aircraft manufacturing and various other engineering and processing industries. The large industries notably HMT and other Public Sector undertaking (PSUSs) started sub-contracting the standard and low technology items to small-scale industries which developed a sound base of ancillarisation, helped proliferations and development of industries.

The controlling agency of PSUs i. e. Bureau of Public Enterprises in consultation with Small Industries Development Organisation (SIDO) framed the guidelines in 1978 for promoting linkages between small & large Industries through ancillarisation. PSUs were required to concentrate on core activities of design, development, research and manufacturing critical items thereby sub-contracting the standard items (for which technology was available with the small-scale industries) or the items, which could be developed in small-scale sector.

PSUs were required to provide raw material technological support, tooling and testing support. The concept of ancillarisation, though limited to certain pockets/regions in the vicinity/proximity of the PSUs, proved a milestone in ushering in an era of sub-contracting amongst the Indian Industries. There was continuous effort by PSUs to indigenise/develop the items through ancillary industries/SSIs which resulted in technological/qualitative development of the latter and further cemented/enhanced the bonds of Sub-contracting partnership. The combination of Govt.

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PSUs/private sector large industries and Ancillary Industries combinations worked as a model of partnership and Sub-contracting with assured orders to Ancillary Industries by providing the assistance of technology assistance, specialized manufacturing facility, raw material, tooling and testing facilities and financial assistance in certain cases to ancillary industries. Large industries in private sector such as Telco, Escorts, Eicher, Ashok Leyland, Mahindra & Mahindra, Punjab Traches have also developed a chain of their ancillaries and major percentage of their components are sub-contracted.

The private sector has provided good base for partnership & sub-contracting in India as was done by Govt. PSUs. Case Study: Hero Group - Growth Models The Hero Group has done business differently right from the start and that is what has helped us to achieve break-through in the competitive two-wheeler market. The Group's low key, but focussed, style of management has earned the company plaudits amidst investors, employees, vendors and dealers, as also worldwide recognition.

The growth of the Group through the years has been influenced by a number of factors: The Hero Group through the Hero Cycles Division was the first to introduce the concept of just-in-time inventory. The Group boasts of superb operational efficiencies. Every assembly line worker operates two machines simultaneously to save time and improve productivity. The fact that most of the machines are either developed or fabricated in-house, has resulted in low inventory levels.

In Hero Cycles Limited, the just-in-time inventory principle has been working since the beginning of production in the unit and is functional even till date. The raw material vendors bring in the goods get paid instantly and by the end of the day the finished product is rolled out of the factory. This is the Japanese style of production and in India, Hero is probably the only company to have mastered the art of the just-in-time inventory principle. Ancillarisation: An integral part of the Group strategy of doing business differently was providing support to ancillary units.

There are over 300 ancillary units today, whose production is dedicated to Hero's requirements and also a large number of other vendors, which include some of the better known companies in the automotive segment. The Munjals have gone much beyond the conventional definition of ancillarisation, making it a point to extend technical and managerial support to these ancillaries. These ancillary units are manned by friends, relatives, ex-employees or close associates of the Munjal family since the Group patriarch, Mr Brijmohan Lall, "… never wanted to march alone. " Employee Policy:

Another Striking feature within the Hero Group is the commitment and dedication of its workers. There is no organised labour union and family members of employees find ready employment within Hero. The philosophy with regard to labour management is "Hero is growing, grow with Hero. " When it comes to workers' benefits, the Hero Group is known for providing facilities, further ahead of the industry norms. Long before other companies did so, Hero was giving its employees a uniform allowance, as well as House Rent Alowance (HRA) and Leave Travel Allowance (LTA).

Extra benefits took the form of medical check-ups, not just for workers, but also for the immediate family members. Dealer Network: The relationship of the Munjals with their dealers is unique in its closeness. The dealers are considered a part of the Hero family. A nation-wide dealer network comprising of over 5,000 outlets, the Munjals have a formidable distribution system in place. Sales agents from Hero travel to all the corners of the country, visiting dealers and send back daily postcards with information on the stock position that day, turnover, fresh purchases, anticipated demand and also competitor action in the region.

The manufacturing units have a separate department to handle dealer complaints and problems and the first response is always given in 24 hours. Financial Planning: The Hero Group benefits from the Group Chairman's financial acumen and his grasp on technology, manufacturing and marketing. Group Company, Hero Cycles Limited has one of the highest labour productivity rates in the world. In Hero Honda Motors Limited, the focus is on financial and raw material management and a low employee turnover. Consolidated Family Business:

The Hero Group is a strong family run business - there is no other Group that has so successfully managed to stay together for nearly 50 years. The system is to bring in any new family member, coming of age, within the fold of the existing business or set him up in a new business. The third generation is already actively involved in existing as well as the new initiatives within the Group. The Group's future is being consolidated with the same zeal by the second and the third generations of the family, aided by workers who typify the hardy spirit of the Punjab.

Diversification: Throughout the years of mammoth growth, the Group Chairman, Mr Lall has actively looked at diversification. A significant level of backward integration in its manufacturing activities has been substantial in the Group's growth and led to the establishment of the Hero Cycles Cold Rolling Division, Munjal and Sunbeam Castings, Munjal Auto Components and Munjal Showa Limited amongst other component-manufacturing units.

Then there were the expansion into the automotive segment with the setting up of Majestic Auto Limited, where the first indigenously designed moped, Hero Majestic, went into commercial production in 1978. Then came Hero Motors which introduced Hero Puch, in collaboration with global technology leader Steyr Daimler Puch of Austria. Hero Honda Motors was established in 1984 to manufacture 1000 cc motorcycles.

The Munjals also took a foray into other segments like exports, financial services, information technology, which includes customer response services and software development. Further expansion is expected in the areas of Insurance and Telecommunication. In Conclusion: The Hero Group's phenomenal growth is the result of constant innovations, a close watch on costs and the dynamic leadership of the Group Chairman, characterized by an ethos of entrepreneurship, of right attitudes and building stronger relationships with investors, partners, vendors and dealers and customers.

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