Nissan Company Profile - Essay Example

CASE STUDY- NISSAN Introduction: Company profile: Nissan Motor Company Ltd (Nissan) is Japanese Company which was previously known as Automobile Manufacturing Co. The company was established in 1933, and is engaged in the automotive industry worldwide. Nissan is amongst the top five car manufacturers in the world and in Japan it is among the top three. It designs, produces and sells more than 3.7 million passenger cars and commercial vehicles in more than 190 countries. Apart from manufacturing of cars, pickups and sports utility vehicles, it also shows interest in the manufacture of heavy vehicles such as vans, trucks, buses, components, industrial machinery and marine equipments. The Company is also engaged in manufacture and supply of automobile parts. Its overseas market includes Europe, North America, Africa, New Zealand, and China. Nissan established an alliance with Renault SA in 1999 in order to resolve its financial difficulty. Renault SA is a French automobile manufacturer, who was looking to expand its brand into other world markets. The alliance was designed to achieve profitable and balanced growth for both the partners through the creation of a bi-national group. Nissan has been working to address global environmental issues that have caused increasing concern over recent years. Renault has been expanding its activities into other world markets by improving core competencies; it is argued that if Renault had not found a partner, it could have found survival difficult when faced with global competition (Autozine, 2002b).The RNA is an agreement concerning a global alliance aimed at "achieving profitable growth for both companies". Both companies have interest of cross shareholding, so they joined alliance for manufacturing facility. Renaults stake in Nissan is a stake in its performance, and vice versa, which immediately moves the alliance away from the likes of Rover-Honda, where no such arrangement existed. The Alliance develops and implements a strategy of profitable growth and sets itself the following three objectives: To be recognized as the best in quality and value of its products and services in each region and market segment. To be among the best in key technologies and leader in specific domains of excellence. To be consistent in generating total operating profit, this is attained by maintaining a high operating profit margin and pursuing growth. The Renault-Nissan Alliance is ranked among the worlds leading five automakers. This alliance mainly includes five brands: Nissan and Infiniti for the Nissan group and Renault, Dacia and Samsung for the Renault group. As s result of the synergies generated by the alliance, Renault and Nissan assert their ambitions for future developments. (Nissan). Q.1) In the April-to-December, 2008 period, net revenue fell 14.7% to 6.6858 trillion yen. Operating profit totalled 92.5 billion yen, down 84.0%. Operating profit margin came to 1.4%. Net income after tax totalled 43.2 billion yen, down 87.5% compared with the previous year. 1.1. SWOT Analysis of Nissan: Strength: - 1) Global Brand: - Nissan is known as fastest growing automotive brand according to business week global brand scorecard. Its brand equity was valued at $3,108 million in 2006. Brand strength provides competitive advantage that can compensate the increasing competition in the market. Over the last five years company has established the global brand by focusing on the brand pyramid and dynamics and has reached a high level of positioning and consistency. It helps to communicate about the brand and specific features of its model. 2) Global Financial position: - One of the key strengths of Nissan is its global financial position. Five year financial highlights are shown below (figures are in USD Millions): - From this table we are able to analyze Nissan’s financial position in 3 key areas – profitability, solvency and liquidity. Return on Assets (ROA) is a key indicator of profitability and thus, overall financial position and management. And it is showing a positive trend in its profitability. This figure indicates that Nissan will be able to withstand tough economic conditions. One final indicator of the strong financial position held by Nissan is its overall growth. From FY02 to FY06 inclusive, Nissan experienced an annual average of 13.8% revenue growth, 11.33% net income growth and 15.62% asset growth. These figures strongly support the argument that Nissan globally is in a strong financial position and will be able to provide Nissan Europe with backing to compete in the saturated European market. 3) Renault-Nissan Alliance: - The alliance provided considerable advantages to both the companies. With this strategic alliance they can enter into new markets faster and with lower costs because they dont have to build new plants. The companies will work together on building common platforms, components and engines, and each company leads engine design in their area of expertise--Renault in diesel and Nissan in gasoline. And they have increased purchasing power because they buy components for six million cars. The alliance has increased the profitability, market capitalization and sales in 192 countries for both partners. 4. Manufacturing Processes: Manufacturing process is the key strength of Nissan. Nissan had to put in lot of efforts in order to develop a culture of continuous improvement similar to total quality management. Total quality management had been an important technique that provided a potential to develop a sustainable competitive advantage. It was founded by works management that the line workers have enabled Nissan to cut 70% of their floor space requirements and 0.16 minutes per vehicle for their operations in Europe. The combination of utilizing and developing all elements of their workers and machinery has helped Nissan to develop a core competency in this area. The line workers have spent more than five days in training for the use of screw driver and thus they became efficient in handling them. This added to their competitive advantage. All the efforts of Nissan were focused towards their development in future. This provided Nissan in Europe to get the Best Factory Award in Europe (T&P, 2004). It made Nissan to gain a considerable part of the market share in Europe and resulted in the quantifiable differences between the performance of Nissan and the ‘Big Three’ Ford, DaimlerChrysler and General Motors). The Ford, DaimlerChrysler and General Motors had an inferior manufacturing process. Nissan required only 15.7 hours of labour to manufacture a car, while it was 44.2 hours for Ford, DaimlerChrysler took 33.8 hours of labour and General Motors took 29.9 hours of labour to manufacture a car. The inventory requirements of Nissan also added to their advantage, as it was inexpensive and helped to build to order different vehicles on the same line. 5. Local Management Development Programs: Another important thing that added to the strength of Nissan is its continuing investment in management development programs. It was focused mainly on increasing the quality and the speed of the decision making process. For this purpose Nissan realized two goals. Nissan was capable of attaining the competitive advantage through the coordinated management training. They provided rotations of 12-18 months incorporating training along with high performance benchmarks. The manager must try to achieve this high performance benchmarks within this specified period of time. The managers also formed a cross-functional and cross-cultural teams. The efforts of this team were focused to find out solutions for specific problems and to resolve them immediately. It had three outcomes that led to develop competitive advantage. Firstly, the solutions of Nissan are superior to those produced by individuals or intra-functional teams. Secondly, the managers were provided with a broader view which they can deal with the subsequent problems which they face in their roles that are assigned to them. Thirdly, the channels of communication that is developed across the Alliance and organization resulted in increased performance. (Woolley etal). Weakness: 1) Dependence in overseas market: - “Nissan produced a total of 3,378,000 units globally in FY2004. 1,482,000 units of them were made at home and 1,896,000 units abroad.” (Nissan swot analysis 2007). Nissan produces more vehicles abroad than producing in the home country. Increasing dependence on overseas production shows their progress in globalization. The major risk of increasing dependence in other market is the risk associated with country in operation, financial transaction, and government policy. 2) Product Innovation time lag; - Like the other Japanese automakers, Nissan was a relative late-comer to the countrys high-profit margin and high-volume pick-up markets. Its late entry meant that it has suffered from the decline in the sector as a result of rising fuel prices in the United States. At that time they have no competitive advantage in this segment. However, there are a number of new models that should reenergize the companys fortunes in the United States. The company also extremely needs new offering in key segments in the European market. 3) Lack of Diesel Technology: - In the Japanese market, diesel accounts for only 0.4% of vehicles being sold. But at the same time diesel is very popular and its share in overall sales has been increasing. “In the year ending 1st January 2006 the number of diesel cars sold increased by 7.5%. Some analysts believe that the diesel market will account for more than 80% of total vehicle sales in Europe by the end of 2008.” (Nissan swot analysis 2007). Diesel technology has been improving significantly over the past decade by reducing emissions, fuel consumption and cost. 4. Distribution Network: Although Nissan has sales network across 19 countries in Europe, it lacks market presence in many countries in Europe. This is because it was difficult for Nissan to set up its own distribution network within these countries as a result of low market share. It provided an opportunity for Nissan and Renault to set up a joint distribution network. This helped to reduce the costs of both Nissan and Renault and it enabled Nissan to develop market presence all over Europe. (Woolley etal). Opportunity: 1) Asia market: -By combining lower penetration with strong rise in income levels can help Nissan in continuous jumps in car sales in markets like China and India. So global players should have products for these markets or they should be planning to develop products to enter into these markets. In the year 2004-05 domestic sales of car and utility vehicles in India has crossed the 1 million mark. 2) Relocate its manufacturing unit to reduce cost: - The Japanese car maker has moved to the policy of producing where demand exists. Car making is an industry coming under the main frame of globalization and major players will try to accelerate their cross border activities. Manufacturing units in America and Europe have large capacities aligned with their vast domestic automobile output. This will give benefits of scale, the continuous slow growth in their local market and their inflationary increase in production cost, especially wage cost. Adoption of cost reduction measure became necessary for players to survive. China, India and Thailand have been known as the low cost production bases with their unique offering to the outsourcers. Low cost country will provide them the global clientele and technology. In India area of opportunity lies in the products which have high level of design and engineering requirements, low level of automation and significant assembly requirement. 3) Renault-Nissan Purchasing Organization (RNPO): - The RNPO was established in 2001; afterwards Renault-Nissan would combine their resources to create a more efficient organization. Currently Nissan and Renault share 60% of the same part and raw material suppliers. This helped Nissan to gain greater purchasing power and has served to reduce costs and reduce the bargaining power of suppliers. There still remains significant opportunity for Nissan through the RNPO to decrease costs and provide increased competitive advantage. Threats : 1) Cross-Cultural Disharmony: - When Nissan and Renault become integrated with one another, the risk of cross-cultural disharmony increases. If disharmony occurs then, overall company performance may be reduced and the current strengths that the alliance provides may become instabilities. 2) Rising Commodity Prices: - Due to the economic expansion of China, changes in commodity prices could affect the costs incurred by Nissan. Over the past 12 months, the price of steel used in car production has risen significantly. And Nissan has taken steps to reduce the effect of rising steel prices and Nissan started using hot dip zinc coated steel and converted to less expensive steel. This increase in cost of steel affected the demand for new vehicles. This threatens Nissans viability in the region. 3) Market saturation: - The overall automobile industry has been significantly affected due to decrease in overall industry sales numbers. Due to overall market saturation, the individual company faced a lag in their new product development strategy because of changing market expansion from year-on-year model changes to drastic innovation. (Nissan swot analysis 2007). 4. Competitive Rivalry: As the European market is saturated, Nissan had to undergo a stiff competition with its rivals. The rivals concentrated on more and more efforts in order to increase their market share. The Nissan’s strategy wasn’t focused to compete directly in fundamental segments. Instead they decided to build unique, profitable vehicles. It was very difficult for Nissan to increase its market share in Europe, so instead of trying to increase its market share its efforts were focused on making its operations more profitable by creating unique vehicles that is different from that of its competitors. Nissan also focused on continuous improvement to gain competitive advantage. (Woolley etal). Q.2) The Renault-Nissan Alliance was signed in March, 1999 and the Alliance ranks among the worlds leading five automakers. It includes five brands Nissan and Infinti for the Nissan group and Renault, Dacia and Samsung for the Renault group. Evaluate the potential for the Nissan and infinite brands to compete in the current environment? 2.1. Core competencies: The capabilities that are critical in achieving the competitive advantage is known as core competencies. The competition between business starts from developing its competence mastery in market power and market position. All the activities of the business cannot be controlled by the senior management neither it could undertake the competencies required to attain them. So the main objective of the management is to focus its attention on competencies that really affect competitive advantage. Core competence in Nissan is not fixed; it changes according to the changes in the environment. The core competence of Nissan is flexible and may evolve overtime. As the business copes up with new opportunities and circumstances the core competencies will also have to adapt to these changes. The main objective of the company will be to become the lowest-cost producer in the industry. Cost leadership is seen as "standard" products with good quality and value are supplied to the majority of the customer with minimum costs. It focuses its attention in maximizing sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share. (Strategy- core competencies). Some of the strategies that are adopted by Nissan are as follows: Target costing. Value engineering Cooperative strategy Operations strategy Target costing system: It is mainly aimed at developing the product that satisfies the need of the potential customers and makes the sense of the product mix. The target price is identified based on the client’s perceived value and the required level of profit is determined. This profit is known as the target profit. Value engineering in Nissan: It is the evaluation of the business function which is done with the objective of reducing costs along with satisfying the customers. It allows matching the effective costs to targeted costs. It is generally a process which can be performed at several stages of product life cycle. (Neves 2004). Cooperative strategy: It concentrates in improving the competitive strategy by enhancing the qualities that afford competitive advantage. It also strengthens the corporate strategy by making the corporate mission more attainable. Cooperative strategy is considered as an additional policy option in enabling the firms to compete more effectively. (MBA- co operative strategy 2008). Operations strategy: Operations strategy of Nissan is focused in identifying the problems in production. It allowed multiple vehicle combination. The current vendor relationships are designed for mass production and not customization. For the manufacturers and the consumers the make to order production is associated with the additional costs. (Jimenez 2008). 2.2.Nissan’s Global Strategy: Nissan’s global strategy includes Oppama challenge and global deployment. These strategies were focused towards the revival of growth and further development. Oppama challenge was mainly introduced to increase their production volume for the Oppama plant. It is also known as the survival strategy. Q.3) provide a critical appraisal of the strategies of Nissan since 2005. Your answer should concentrate on significant strategic initiatives and must be supported by appropriate tools of analysis and models? 3.1 PESTEL Analysis: POLITICAL Legislation Environment Company Cars Competition Taxes and Duty Subsidies  ECONOMIC Excess Capacity Economies Of Scale Diversification Mergers and strategic alliance s SOCIAL Environment Car Culture Fashions and taste Redundancies TECHNOLOGICAL Advanced Japanese Customer oriented State-of-the Art Futuristic LEGAL Operating in global environment Competitive rivalry Customer interactions Government actions 3.2. Porter’s Five Forces Model: The most influential analytical model for assessing the nature of competition in an industry is Michael Porters Five Forces Model. Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five "competitive forces" are: Threat of New Entrants: The entry of other players in the industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants is largely dependent on the barriers to entry. Usually automobile industry needs high capital investment and it may cause barrier for other new players to enter into the market. Industries with low barriers to entry are relatively cheaper for new firms to enter. Here are some common barriers to entry: Patents – patented technology is a great barrier for other firms from joining the market. High cost of entry – high set up cost is a barrier for new entrants. Brand loyalty – when brand loyalty is strong within an industry, it is very difficult to enter as well as create a market share. The threat from substitutes: This is one of the most important factors affecting competitiveness. The substitute products may lower industry attractiveness and profitability. It may result in limiting the level of prices to Nissan Motors than general motors. Diesel technology is improving significantly, reducing the fuel emissions and cost. When switching cost of a product, fewer customers will jump to the substitute products of its competitors. But here for Nissan there is no problem of switching costs. Bargaining Power of Buyers: These are the people or organizations that create demand in an industry. Bargaining power of suppliers is of two types. The first is related to the price sensitivity of customers. Price sensitivity means if all brands are same then customer will look at the price for making purchase decision. This will increase the competition and result in lower prices, and lower profitability. The bargaining power of buyers or customers of Nissan Motors depends on how strong is their position and how well they could combine together to produce results in large volume. The second type of buyer power relates to negotiating power. If buyers are large in size then automatically they have the tendency to negotiate for lower prices. When there are many small buyers of a product, all other things remaining same, the company will supply products at higher prices and higher margins. On the contrary, if there are few large buyers, those buyers will have significant leverage to negotiate for better prices. In the case of Nissan, a successful brand bargaining power of buyers is very low. Bargaining Power of Suppliers: These are the businesses that supply materials & other products into the industry. The cost of the materials bought will have an impact on the company’s profitability. If the bargaining power of the supplier is high, then the company is less attractive. The bargaining power of suppliers or vendors of Nissan Motors depends on how strong is the position of the suppliers and whether there exists a monopoly. The rivalry among the existing players or competition level of Nissan Motors depends on how strong the competition is between the existing players in the market. Because European market is saturated, Nissan will face high level of competition as rivals attempt to increase their market share. (Mallon 2009). 3.3. The Boston Consulting Group (BCG) has a major impact on business. In the case of Nissan it is seen that it operates in a high growth, low market share environment. If it wished to move into the high growth, high market share areas, it needs to make substantial investments to match that made by its rivals and competitive firms in the automobile markets. Otherwise it could also adopt a stand alone strategy of investing in a high market share area but with low growth, and try to establish monopolistic control. In certain areas, it also needs to keep low growth and low shares, where high market share would bring in myriad problems like government controls, bureaucracy, taxation laws, customs and duties, high operating and personnel costs, etc. Thus, for a company like Nissan, it is necessary that it needs to understand its own limitations and market competencies, especially when it has to compete with Korean, Chinese, American and British cars makers 3.4. ANSOFF MATRIX Igor Ansoff has developed the Ansoff matrix to focus on the firms’ present and potential manufacturing processes and customers/markets. In effect, he deals with how companies could grow in existing as well as new markets, by offering new and existing products, so as to optimise their earnings, profits and future profitability. (Ansoff matrix 2007). He considers the marketing strategies of market penetration, market development, product development and diversification programmes as major thrust areas for business growth and expansion. In the case of Nissan it is observed that it has not been able to make strategic forays into well diversified global markets and is mainly confined to the Middle East Markets. It is necessary to make products and designs that could satisfy a large cross segment of buyers, in terms of pricing, technology and innovation. Moreover, in today’s world where cars are considered more of a necessity than luxury item, it is important that Nissan delivers where and when it matters most, in order to remain competitive. It would be far fetched on its part to claim global ascendancy, when its main markets are just confined to few countries, or market segments. It needs to match marketing savvy with the giants like Ford, Toyota, and GM in order to truly be called a world class company. Conclusions: This study seeks to consider the competitive and strategic advantages that a global Japanese giant automaker, Nissan has, in terms of business growth prospects. While it has strong advantages of being a strong automaker in terms of technical leadership and locational advantages, it has not been able, either to consolidate its marketing advantages or seek innovative and current technologies, including use of diesel run vehicles, or low fuel consuming vehicles. Thus what is most important in the present context is that Nissan needs to become more competitive and global in strategic marketing and also build stronger partnerships and alliances with world partners, in order to benefit from such alliances in the long run. It needs to focus on current market trends, make use of business opportunities and focus on global markets in attempts to bolster its profits and bottom lines. In a field where rapid and astounding technological and commercial progress is being made by automaker giants like Toyota, Ford Motors, Daimler- Chrysler, it is imperative that Nissan also needs to become competitive and highly progressive minded in order to benefit from the beneficial winds of change blowing across global automobile world. Appendices Appendix 1: Global Financial Position (Nissan swot analysis). Appendix II: SWOT Analysis Strengths Competitive pricing Good financial position Effective marketing strategy Experienced personnel High market share High quality products/services Innovative products/services Lucrative location Strong market position Strong brand Weaknesses Low market share Low quality products/services Lack of business alliances Lack of Patents/Proprietary technology Lack of original products/services Limited customer base Opportunities Change in consumer lifestyles Acquisitions Available Governmental support Available technological innovations Good financial position Gain online/e-commerce presence Growth of the industry of operations Decrease in taxation Threats Competition from foreign markets Competitors actions Changes in demographics Changes in regulations Change in consumer lifestyles Changing technology Changing consumer patterns (Nissan SWOT analysis). Appendix III: Target Costing (Neves 2004, p.4). Appendix IV: Porter’s Five Forces Model (Five competitive forces model porter 2009). Appendix V: Nissans Global Strategy: Nissan Revival Plan 2000-2001 Nissan 180 2002-2004 Nissan Value-Up 2005-2007 It was focused to revive the company. It was focused towards the complete revival for the profitable growth. It was focused towards the value for the sustained performance Commitments Profitability in FY00 Operating profit margin>4.5% in FY02. 50% debt reduction by FY02 +1M units by sep 2005 8% operating profit margin. 0 automotive debts. 4.2M units in FY08. Top level operating profit margin. 20% average ROIC. (Takahashi 2007, p.5). Appendix VI: Boston Consulting Group (BCG) Matrix Star: high growth, high market share Diversification Strategic alliances Cartel formations Competitive advantages Dumping and price cutting Question mark: low market share in rapidly growing market Low cost high volumes Reduce operating costs Effect market economies Export promotions Setting up overseas mfg unit Dog: low growth, low mkt. share No need for heavy investments High imitatability Fierce rivalries Competitive markets Cash cow: low growth and high market share Strategic pricing for higher profits Market consolidations Lower competition Test market for new products BCG Matrix for Nissan Automobiles Compiled from sources derived from: The BCG (growth share matrix 2007). Appendix VII: Ansoff matrix Particulars Existing products New products Existing markets Market penetration Aggressive selling Better customer liaison improved servicing and facility advertising and sales promotion Product development Customer awareness Benefits of new automobiles Maintenance, fuel and servicing Cost and performance comparison with competitors’ vehicles New markets Market development Celebrity endorsements Locational benefits Pricing and service benefits Strategic partnerships/ alliances with local automobile makers Product diversification Fuel efficient vehicles Smaller, economical cars Luxury cars on market demands Manufacturing units in new global settings with lesser overheads and operating costs. (Ansoff matrix 2007). 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