Business and Management of Nissan Motor Co. Ltd - Essay Example

NISSAN-- COMPANY OVERVIEW Nissan Motor Co. Ltd. is in the business of international automotive industry. The company is engaged in the manufacture and sale of products relating to the automotive industry. It also provides financial services to its customers relating to sales and finance which includes car financing in the form of leasing and credits. The company designs, produces and sells various brands of cars and vehicles; including light passenger cars and heavy industrial vehicles. The company's range of products includes cars, buses, trucks and pickups etc and the related automotive products. The company operates on the international scale. It sells more than 2.5 million products to more than 190 countries around the world, which gives an indication towards the company's rapid global expansion (Nissan Motor Co Ltd, accessed 07.01.2006). According to the company's annual report for the year ended 2005, Nissan is basically a Japanese-based company and other than its home country, it has a major market for its products in the United States, United Kingdom, Spain, Thailand, China, Egypt, Brazil and other 150 countries around the world where Nissan automotives and their components are sold. NISSAN- CORPORATE GOVERNANCE Nissan is a publicly traded company and listed on major stock exchanges of the world. According to the company's annual report for the year ended 2005, the company keeps a double management team comprising the Board of Directors and a Statutory Audit Committee based on their duties and responsibilities under the Commercial Code of Japan. The company's major stakeholders are its customers, employees, shareholders and suppliers etc. Currently, the company has nine members of the board of directors, of which only one is external. The company's Statutory Audit Committee comprises four auditors out of which three are external statutory auditors. The company's management structure is designed in a way that the Board of Directors is responsible for taking the entire management decisions whereas the Statutory Audit Committee is responsible for reviewing the Directors' performance. NISSAN- GLOBAL STRATEGY As mentioned above, Nissan is an international company having its business operations in more than 190 countries around the world. But its major markets include the home market Japan, the North America, Europe, China, Asia, Middle East, Africa, Latin America and the Caribbean. The company maintains its global sales strategy and plans to enhance its sales in all the major areas of its operation. According to the company's Annual report, the company's strategy in Japan is to expand its sales by the enhancement of its marketing strategy and the establishment of an efficient dealership network. But despite all that, the company's sales in its home market are declining. The automotive industry in Europe is highly diverse having a great number of manufacturers engaged in car design, production and sales. To maintain its profitability in the European market, the company's strategy is to design and provide the unique and stylish products that could earn more profits for the company. The company's wide range of products is very popular in North America and China. The strategy behind the success in these areas is to provide its products at a price that is acceptable to its customer group. In the Asian market, the company has planned a strategy to penetrate into new growing markets. In the Middle East, Africa, Latin America and the Caribbean countries, the company is making its profit by adapting a strategy to remain flexible with the market conditions in terms of production. ANALYSIS OF CURRENT PROBLEMS AND ISSUES After the in-depth analysis of Nissan Motor Co. Ltd., it can be seen that the company has to confront with major issues that could affect its sales and profitability for the years to come. Some of the major issues are analyzed and discussed below: Increasing Cost of Sales Although the company has been successful in generating sales for its business for the current year, but still the rate of increase in profit doesn't reach the level of increase in sales. The company's sales have increased by 15.43% but the Gross Profit has increased only by 5% as compared to the last year. The reason for this considerable gap between the sales and gross profit indicates that the company is incurring high cost of sales in the process of production and distribution of its products. If this trend continues to prevail in the future years, it will make the company lose most of its revenues on various production and distribution costs and thus will wipe away a great portion excessive profits. Therefore, the company should re-consider its present structure and cut down the costs incurred process of production and distribution. Increasing Debt The company's total debt has had an increasing trend over the years as shown by the company's annual report for the year ended 2005. Currently, the company's total debt is about 160% of the total shareholder equity, which shows that the company has a debt-based capital structure. The extent of the total debt obtained by the company has been increasing over the years. It has increased by 71.47% over the last year. This situation makes the company pay heavy amounts out of its profits as interest on the debts. Moreover, if the company fails to pay off the debts over a specific period of time, it may shake the creditors trust in the company's solvency and eventually the company can go towards bankruptcy. Therefore, it will be highly risky for the company's financial position if the existing trend continues to prevail. Decreasing Profit Margin The company's profit and loss statement shows a substantial profit before interest and taxation obtained by the company, but after an in-depth analysis it can be figured out that the rate of increase in profit margin has declined as compared to the previous years results. Even though the company's net sales has increased by 15.43% over the last year, the company's PBIT margin has declined as compared to the last year. The PBIT margin increased by around 12% from 2002-2003, but in the year 2004, it increased by only 4.4% approximately. Therefore, it can be said that the rate of profit margin has declined by about 7% over the last year. It shows that the company is incurring heavy expenses on selling and administration activities. These expenses consume about 61% of the company's total gross profit. Again, this is a major issue that needs attention of the company's management. Increasing Oil Prices Increasing prices of oil in the international market has been affecting the oil prices around the world. Nissan Motor Co. Ltd. is in the business of automotive design and manufacture and hence, the demand for products offered by the company greatly depends on the fuel prices that act as the lifeblood for vehicles. If the fuel prices increase internationally, the demand for the company's products will decline on a large scale because the company operates on an international level and thus the company would not be able to generate more sales and profit for its business. This can not only affect the company's financial position but also will have an adverse impact on the company's financial position. This is one of the most threatening factors for all the companies in the automotive industry. Increasing Competition The company is having a successful venture in the automotive industry in more than 190 countries in the world where it operates, but has to confront with the challenge of increasing competition in its industry. The competition is increasing worldwide in the automotive industry especially in the European and American regions as a number of companies are entering the market that can have a negative impact on the demand for the company's products and result into declining turnover and profits. Hence, after the above analysis of the current issues faced by the company, it is evident that although the company's annual report shows a solid performance and position of the company, and even that is true to some extent but there exist a number of serious issues that the company needs to confront with in order to ensure a better financial position and performance of the company in future. Works Cited Annual Report 2004, accessed January 7, 2006 from the World Wide Web: http://www.nissan-global.com/EN/DOCUMENT/PDF/AR/2004/ar2004e.pdf Company Profile, Nissan Motor Co Ltd, accessed January 7, 2006 from the World Wide Web: http://today.reuters.com/stocks/CompanyProfile.aspxType=Full&symbol=NSANY.OQ Meigs & Meigs (1993), "Accounting: The Basis for Business Decision Making", Mc Graw Hill: New York Mcmenamin Jim (1999), "Financial Management: An Introduction", Routledge, London Read More