The Japanese Market Analysis for Exxon Mobil - Assignment Example

Japanese economy is one of the most developed economies in the world. In term of GNP it is the second economy in the world after USA. However, for Exxon Mobil the most important point is that it is one of the largest consumers of energy resources (the fourth)) and the second largest importer of energy. Economic and Financial indicators. Japan is a modern economy that relies on the export of IT and electronic goods and cars, however there is the dearth of raw materials that is why Japan has to import such raw materials as oil and wool. In the 90s Japan lived trough the period of stagnation (due to structural transformation process and financial crisis. Despite the fact that the Japanese economy has rebounded slightly in first several years of new millennium after the period of slow growth, it still faces some serious structural problems. At the beginning of the year 2004, there was some hope that more strong consumption demand as well as new better conditions in corporate sector would entail economic recovery. However these hopes did not materialize due to several factors: 1) Slack demand on IT products evinced in the world did not allow Japanese companies to increase the export and consequently their level of production. 2) Domestic levels of consumption were too weak to sustain economic growth. As the result of the factors mentioned Japan still experiences slow economic growth-2.6%. Following is an annual inflation rate in Japan during the period of 1998-2003. Year % 1998 0.6 1999 -0.3 2000 -0.7 2001 -0.7 2002 -0.9 2003 -0.3 2004 -0.1 As we can see Japan economy has been experiencing deflation during the last several years. Whereas other developed countries have experienced low inflation Japan still needs to curb deflation. That is why every company that operates in Japan faces the threats of deflation which entail: the risk of relocation of the debt from debtor to creditor; the risk of decreasing of the prices on the assets as well as the risk of continuation of stagnation. However, these negative factors might be mitigated by effective monetary policy of the Bank of Japan. In order to remedy the threat of deflation Bank of Japan has implemented zero interest rate in order to maintain low interest rates of financial institutions. Despite the fact that Bank of Japan might announce some inflation objective, especially if the treat of inflation is evident, nevertheless one could hardly expect the tightening of monetary policy, in view of the lack of growth of the Japan's economy. Besides, the financial sector of the Japan's economy is much healthier today than in the 90s. Commercial bank can boast of positive net income (the first time they have posted in since 1993). They have jettisoned most of non-performing loans from their balance sheets; nevertheless in spite of this notable progress their profitability remains low. 'Summing up all factors mentioned I think it is relatively easy to obtain the credit in Japan (with low interest rate). ' Since 1990 the energy sector of Japan has started to consolidate (partly due to the stagnation). Japan has no substantial oil reserves and relies heavily on imported oil. There was a noticeable increase in the consumption of oil in 2003 (the consumption increased on 5 % during the period 2002-2003), largely due to the notable decrease in the number of nuclear plants in Japan during the period mentioned. Nevertheless nuclear plant will resume their work in 2004 that might entail some slight decrease of the demand on oil. Japan has one of the highest GNP per capita in the world-29400 USD. Japanese people like to travel abroad and the demand on the traveling overseas was very strong even during stagflation, moreover there is strong demand on new vehicles. Thus it is possible to claim that potential market for oil industry is quite strong. Despite the fact that Japan has had low economic growth during the last several years, government programs of liberalization as well as deregulation will produce positive impact on the economy and will undoubtedly entail economic growth in the nearest future; this in turn will increase the demand on oil, so long term prospects of energy sector are really good. Political and legal issues. Japan is one of the most political stable countries in the world. For more than fifty years it has not witnessed any serious political disturbances, neither there is any ground to claim that it will face them in the foreseeable future. It is a parliamentary democracy, nominally is governed by "emperor", who does not exercise any significant powers, apart from some ceremonial functions, and represents the symbol of nation and the unity of Japanese people. Japan is not a federal state and the main authority is in the hands of central government (nevertheless municipals have large degree of autonomy in local affairs as well). For Exxon -Mobil Corporation it means that there will be no great difference in laws of several regions. Law making process is in the hands of parliament (Diet). The legislature assembly exercises some degree of control over the cabinet; it also elects a prime minister and his cabinet. Japan is a democratic country whose citizens enjoy the same rights as the citizens of many other western societies. Postwar constitution granted the rights of free trial, freedom of religion and speech; it also grants rights to minimum standard of living and equal education and numerous other rights, which however can be limited by law, if such limitation is deemed to be in public interest. There has been no amendment in the constitution since 1947, despite the fact that there have been some attempts to amend several provisions. One can not expect that that there will be any changes, especially if one takes into account weak public support for the changes proposed. In my opinion this reflects the stability of law and political forces and indicates that any company can work in current law environment without major changes for years to come. One of the major problems that Japan faces today is corruption. According to the survey of Transparency International Japan is on the twenty-fourth, out of 146 countries, place by the level of corruption (it is on the level of such country as Chile). However, government has taken several effective measures to combat corruption and has implemented effective legislature to reduce the level of corruption. Despite the fact that corruption is a problem in Japan, it is on comparatively mild level and does not pose a very serious threat to the business of the company. Environmental issues have gained momentum in Japan and government has had to take some measures in order to protect the environment and alleviate some serious pollution problems. The programs of low-pollution transports are supported and the using of the cars with alternative fuels is encouraged. The government is also bound by Kyoto protocol, and despite the fact that Japan's economy is still dependent on oil, the country is trying to reduce its dependence by increasing the consumption of different energy sources (such as solar and hydro sources). It has been, it is still and intends to be a world leader in implementation of energy-saving technologies as well as environmental technologies. As in all other countries there is growing demand for the implementation of more environmentally friendly policy and the program that will sustain economic growth with environmental conservation. Despite programs for the protection of environment Japan still faces some challenges, such as nuclear waste and road traffic; thus it is possible to assume that some laws that will facilitate utilization of waste materials will be accepted in the future. Social factors. Japans society is remarkably homogenous one, the majority of population is Japanese; other groups of people such as Koreans and Chinese constitute no more than 2 percent of population. Most of Koreans are children of immigrants that were brought to Japan at the beginning of the 20t century, in spite of the fact that many of them were born in Japan and have lived in this country all their lives they do not have full citizenship and many of them occasionally face discrimination. There are also some immigrants from other countries, though their number is small. Japanese is an official language, the most common and recognizable dialect is the standard Japanese which is frequently heard on radio and television. Japanese language has several distinctive dialects some of them are spoken in Okinawa and Kyushu, and are not understood by people of other dialects. In spite of the fact that Japan is a relatively homogeneous country-Japan speech reflects in many cases the social relationships. There are various degrees of expressions of politeness to emphasize the social status of the person, his sex, age and etc. Modern Japan language has many English words, as well as words of German and Portuguese origin. Roman letters are widely used in advertisement. Many students at the University study English language, however it is advisable to hire entrepreneurs, as only young and well-educated persons are able to speak English language. Japan's society is not stratified. Despite the fact that Japan is a modern developed country no large distinction between social classes exists and socially it is one of the most homogenous countries in the world. More than 90 percent of Japanese people belong to the middle class. Traditionally, Japanese society has been one of the most group-oriented societies in the world. Group consciousness is inculcated upon the child at the early age- and group-oriented behavior continues trough the whole period of adulthood and contribution to the success and well-being of the group is considered as one the greatest virtues. That is why most of the workers regard their collectives as ones of the most important groups of people in their life. Individuals are really committed to the success of the group and may forsake their selfish interests for the benefit of it. The result is that the level of the conflict between the employees of the company is relatively small. Such qualities as cooperation and contribution to the success of the company are greatly valued. This philosophy stems form belief that if everyone does his utmost and relates his deeds with the well-being of other persons in the group than everyone will benefit from it. Vital decisions are sometimes made only after consultation with each member of the group. Certainly, it is impossible to reach universal agreement on some controversial issues in the company (especially if the company is a large one and problems are complex); however this procedure of consultation reinforces the feeling of participation in the decision -making process of the company. Participation in different social activities of the group is valued and serves an indication that the person considers himself indispensable part of the collective. That is why it is common to visit bar or other public places with the colleagues, not only to relieve the pressure but also to vindicate a desire to be a member of the group. Based on the factors mentioned one might expect that workers employed at Exxon-Mobil will be group-oriented and will regard the success of the company as one of the most important aims of their life. However, one should take into account that management is associated with seniority in Japan that is why it is important to hire only senior persons on management positions; also in spite of the tradition economic crisis of the 90s entailed increased level of competition among the graduates and young people for senior positions. Japan has one of the most well-educated workforce in the world (illiteracy is virtually nonexistent and one-third of high-school graduates receive high education). Competition to get to most prestigious Universities is intense, as education received at these Universities values greatly on the market. Many students who intend to study at the prestigious universities should attend special schools- yobik'; if however he has failed examination or did not gain the score he has been aiming at, he could either settle for less prestigious university or even choose not to attend any college at all. The value of studying at the most prestigious Universities is thus very high. Most prestigious Universities however are located in Tokyo. That is why it might be advisable to establish the headquarters of Exxon Mobil, either in the capital or in the vicinity of it, in order to get most educated persons. Besides young people, tend to migrate to this city in search for the job; thus both engineer personnel as well as tradesman can be easily found in this city. Modern Japanese society is secular, however average Japanese tends to regards the ends to be more important that the means. Thus the student knows that his success in entrance examination depends on his application, hard work and knowledge, he might nevertheless visit a shrine to ask for a spiritual help. That is why it is advisable to study the customs and beliefs of Japan people more thoroughly before one can start successful business venture in this country. Competitive environment and competitors. Since 1996 a liberalized import of gasoline and several other fuels have been maintained, the main purpose of the deregulation scheme was to reduce Japanese prices on oil vis-'-vis world prices and increase competition by inviting several foreign companies to participate on the market. Competition has been increased due to the participation of oil and gas companies in the import of gas liberalization. There are several huge players on the oil market of Japan. Japan National Oil Company is one of the largest ones. However, this company has lived through difficult financial times (due to providing bad loans to several exploration companies) there are some grounds to believe that the company will be liquidated in the nearest future and several companies will be established of the most stable financial departments of the company. Other companies are Inpex and Teikuku oil. They have recently declared the merging, which might reflect consolidation trend in Japan's oil industry; and is viewed as an attempt to create much stronger company in the era of high demand on oil. These companies represent ones of the major competitors on the market. Exxon-Mobil will be able to compete successfully against the companies mentioned, especially if it introduces some innovative and bold approach in its business. The liberalization of oil market, implemented by government as well as its intention to reduce the oil prices creates some potential possibilities for the business of the company. More robust economic growth that apparently will evince itself in the nearest future will increase the demand on oil and provides great incentive for the new company to enter the market. However, Exxon-Mobil should take into account the integration processes of current oil companies and merging of these companies with new ones. Consolidating of the economic and finance resources of large competitors represents potential threat to the business of Exxon-Mobil, nevertheless this threat might be surmounted especially if the company takes some innovative actions and implement more innovative programs. In order to succeed it should implement some new technologies or new products, because apparently it will make the company more competitive and the business of the company will be more productive. The company should pay close attention to existing companies rather than to new ones. In my opinion this is a world-wide tendency and oil market is dominated by large companies and small ones play secondary role. The fact that there is not enough entrepreneurial activity in Japan, can also indicate the low probability of new players entering the market. Japan belongs to the region where new business has traditionally been looking for new markets, rather than for new technologies or new products. Total entrepreneurship activity is comparatively low-1.5, however one might expect growth in it, especially if more liberalized policy is introduced. ' However in view of some of the experts ageing population as well current labor situation might restrain entrepreneurs. Japan has the lowest rates of start-up business among developed countries. Such expert as Takihido Yasuda holds the view that this lamentable situation stems from several factors such as small ratio between the incomes of entrepreneurs and hired workers. During recession era there were not many incentives to start own business (the potential income does not justify the launching of new venture), and due to small difference in incomes mentioned there were little desire to leave the job in order to become an entrepreneur. This in turn is explained by the ageing work force of Japan, where salary increases with age and management as was mentioned above, is associated with seniority. Moreover, this system does not give an incentive to the worker to leave his job and start a new business. Based on the information mentioned one should presume that there will not be too many new competitors in the segment of Exxon-Mobil market. In spite of government's efforts to liberalize the market, Japan still faces some critical structural problems; thus before starting new company Exxon Mobil has to review existing potential competitors and may not take into account the threat of some new domestic ones. Summary and advice. In my opinion, it is profitable to establish new oil company Exxon-Mobil in Japan. Right now, there are several factors that favor the process of expansion on Japan's market. These factors are the following: low interest rate, which means easy access to the credits; liberalization of oil market, implemented by the government-that will facilitate importation of oil; low level of entrepreneurship activity that reduces the threat of new players in the market; high purchasing power and strong demand of Japanese people on overseas tourism and on the new vehicles; expected economic growth which may entail strong demand on oil, in spite of the fact that energy-conserving programs have been recently implemented, Japanese manufacturers still depend on oil. Work cited. Wilbur John Coleman II, Structural Transformation and Growth Slowdowns: Japan in the 90s Duke University August 29, 2005, available from Japan country analysis briefs-2004, Energy Information Administration available from Library of Congress, A country study Japan, available from Japan energy supply analysis, available from http://www.fpcj.jp/e/mres/publication/jp/economy/energy_main.html . Japan Guide, available from < http://www.japan-guide.com/e/e644.html >. Japan annual inflation rates, available from . Japan's two big oil companies to merge next year available from Read More