Automotive Industry and Nissan free essay sample

At present Nissan has increased its focus on emerging markets like India and Russia. In March 2010, Renault-Nissan Alliance inaugurated its first plant in Chennai, India. The plant will become operational in May and expected to launch car by mid this year only. This is not the first global move of Nissan. It has been making strategic alliance with number of other automobiles companies for example Renault, Volvo etc. as per its business strategy of direct technology transfer. This paper aims to study Nissan ¶s ? Go-Global? strategy. During the study, we will try to understand the various imperatives that company have to operate at multiple locations, how it chooses among various locations and how it goes about implementing the expansion plan. Studying Nissan ¶s global strategy and focussing on its moves specifically in India and Russia, will help us enhance our understanding of Nissan ¶s strategy. Also, it will not only provide us understanding of Nissan, but also help us to understand the concept and its practical usage in real time scenario in general. We will write a custom essay sample on Automotive Industry and Nissan or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Keywords: Nissan, global, India, Russia, strategy, alliance INTRODUCTION With the increasing trend of globalization and heightened competition, most of the companies at some point of time think of expanding to new locations because of different imperatives ranging from efficiency, growth, competition, knowledge or mix of few. Each company decides its own parameters while making strategic choices of a market or a country. Every firm has a different strategy to make choices of the countries, understand their market potential, and make risk-return analysis of the country. The irm then determines the entry mode strategy after deciding a country and how and to what extent, they want to transplant their DNA to the new venture. The automobile industry is one such industry where one needs to be globally competitive to survive and as well as to keep growing. Many automobile companies have ventured into different countries for one or more imperatives mentioned earlier. Nissan Motors is one of such companies which have made its presence felt in all the parts of the world. This paper is an effort to study the global strategies of Nissan focussing mainly on its new ventures in India and Russia. It studies the advantages and disadvantages of Nissan ¶s strategy and recommends strategies to be followed in India. AUTOMOBILE INDUSTRY Global automobile industry had a smooth ride and the industry rose in leaps and bounds till the recession hit the world. Automobile industry was highly impacted by the global financial downturn and the industry went into a crisis. The period from 2008-10 is considered to be period of automotive industry crisis. Most of the big guns in the industry lost huge deals of profits and sales declined. Many big players reached stage of bankruptcy like GM and Chrysler. The situation is getting better in 2010 with markets recovering and sales increasing slowly. In 2008, more than 70 million vehicles were produced but it was less than that of 2007 due to reduction in demand [13]. The markets in North America and Japan have become stagnant but there has been rise in demand in developing nations mainly Brazil, Russia, India and China. China surpassed Japan to become the largest producer of vehicles. Toyota is the largest automobile company in the world followed by Volkswagen and GM. Automobile Industry in most parts of the world is highly competitive which has led companies to go for global expansion and form strategic alliances to be competitive in the market. The companies are moving towards the fast growing developing nations for their new market and even using them for exporting vehicles to other parts of the world. Automotive industry is also incorporating new technologies. The launch of hybrid engine cars in the recent past is one of the major technological advancement. Many companies are working to produce electric vehicles and looking for another means of fuel for the cars. The automobile industry is constantly changing. Due to the recent global recession, there has been a slowdown in the demand of vehicles and people are moving towards small compact cars which are normally low priced. Many companies which earlier normally catered to luxury segment are also entering this new attractive segment. Global expansion has been the foray of automobile industry since long. Companies started expanding themselves since early 1900 ¶s. Nissan is also one of the major automobile companies which started its global expansion around 50 years back. NISSAN MOTORS Nissan is a multinational automaker headquartered in Yokohama, Japan. It is the 3rd largest auto manufacturer in Japan. The company was founded on 26th December, 1933, with the merger of the automobile components department of Tabata Casting with a small automobile producer and repair shop factory owned by DAT Motors, a new company was formed with the name DATSON, which was later changed to DATSUN (Nayebpour and Saito, 2007). It formerly marketed vehicles under ? Datsun? brand name but later changed it to Nissan. Nissan markets its vehicles mainly under two brand names i. e.  µNissan ¶ and  µInfiniti ¶. Infiniti is the luxury car division of Nissan and works as a separate subsidiary. Nissan is a Fortune 500 company with around $93 billion revenue in 2008 [12]. It has manufacturing centres in 18 countries and RD centres in 5 nations and services in around 160 countries in the world. Nissan made a conscious decision to expand in the global markets in late 1950s. They realized that their small car line would fill an unmet need in markets like Australia and USA. They first showed cars at the 1959 Los Angeles auto show, and sold a few cars that year in USA [12]. The company formed a US subsidiary in 1959. Nissan started improving its cars technologically and exporting them to these countries. By 1970, Nissan was one of the largest exporters of automobiles. After oil crisis in 1973, demand for small cars increased substantially and Nissan opened new setups in Mexico, Australia, South Africa and Taiwan to meet the growing demand [12]. The company decided to give its economy cars a sporting flavour to cater to the new markets. By sixties, US started imposing strict tariffs on imported vehicles. In response to the tariff, Nissan along with other Japanese players began building plants in USA. Nissan entered China in 1972 and is an established player in Chinese market. Recently, Nissan has ventured into India and Russia and opened new plants which will be operational by 2010. Nissan went into deep crisis after the bubble burst of Japanese economy in early 90s. From a profit of 101. 3 billion yen in 1992 Nissan went into a loss of 166 billion yen in 1995 [18]. The problems with Nissan were many. The concept and style of Nissan ¶s cars were not in tune with the current market. Nissan ¶s culture was that of complacency and there was lack of urgency. There was no cross-functional and cross-regional communication. In 1998, the planning department came up with an idea of global alliance to survive. At the same time, Renault proposed an alliance with Nissan. The company realised that there are lot of benefits in alliance with Renault. Both had market strength in different parts of the world and different expertise. Also, Renault had a similar market capitalization and thus the threat of takeover from either side was very less. Daimler wanted to acquire Nissan during the same period but Nissan didn ¶t want to lose its independence. It decided to go for an alliance with Renault in 1999. As per the contract, Renault owned 44. 3% shares of Nissan which allowed voting rights to Renault while Nissan owned only 15% of Renault ¶s shares [6]. The company after the alliance went for a complete restructuring and reduced its cost hugely. The alliance also helped both the companies to develop better global strategies using the strengths of each other. The key highlights of the alliance are: 1. Global Alliance Logistics Committee (GALC). GALCs mission is to decide together on an action plan which involves all the steps needed in order to reduce logistics costs in the world and to standardize all the processes between Renault and Nissan. 2. Identity remains intact for both the companies. 3. A production strategy of synchronous delivery which was already employed at Renault. It helps in planning the production plan six days in advance and notifying the supplier, which were at high distance for Nissan. The Renault-Nissan alliance went on for a strategic alliance with Daimler AG on April 7, 2010 where both the sides announced an equity exchange of 3. 1% of each partner [10]. The highlights of the cooperation are: 1. Next generation 4 seater smart Fortwo and Renault Twingo including electric versions will be engineered on the basis of jointly developed architecture. 2. Sharing of highly fuel efficient, diesel and gasoline engines between Renault-Nissan and Daimler. 3. Collaboration on light commercial vehicles. 4. Additional synergies encompassing selective common purchasing opportunities, exchange of operational benchmarks and best practices to be shared across both groups GLOBAL STRATEGIES OF NISSAN Nissan aims to be the leader in all the markets where it is operating, atleast in its high priority countries. All the global strategies are made keeping the above in the focus. Nissan follows a business strategy of direct technology transfer through formal tie-ups with foreign automakers like British, American, and German automakers or part manufacturers (Takahashi, 2007). This helped in easy and fast transfer of technology and company ¶s cars can directly compete with competitors ¶ high tech vehicles. However, the disadvantage was that few technologies were in early stages. Thus, they were not tried and tested. Hence, bearing their failure was the additional cost. Nissan follows transnational strategy by reducing its costs as well as localizing its products. Initially, know-how was mainly transferred from Japan to other countries. Now a web like structure is followed where knowledge is transferred from each location to all the other location. It uses one market ¶s successful strategy in another if it feels that strategy can work in the new market as well and if the new market is having similarities with the old market. For example when Nissan entered China it used some of its strategies followed in Japan and Taiwan to establish itself in China. Again, when Nissan decided to enter India, it went into an alliance with Ashok Leyland which was a similar sort of strategy followed by the company in China. It went for joint venture with Dongfeng Motor Corporation in China to provide a full range of product lineup of both passenger and commercial vehicles. Similarly, Ashok Leyland was chosen as it has a product lineup of commercial vehicles and Nissan wants to use this alliance to offer a full product lineup focusing on Light Commercial Vehicles (LCVs) which is their one of the most successful products recently. Nissan ¶s approach has been globally focussed but regionally concentrated. The company uses its best practices wherever it goes but makes products which cater to the needs of local consumers like Livina Geniss for China. The subsidiary of each country is an independent unit and works as a separate SBU but every SBU is integrated with other to avoid any duplication and reduce costs. Nissan strongly believes in alliances to grow in the current global world. It believes that mutual cooperation and learning is extremely valuable in todays and even more tomorrows global auto industry. It helps both the sides to broaden and strengthen their product offerings. They have made several global alliances with firms like Renault, Daimler, Mazda, Volvo, Mitsubishi, etc. More than 73% of its global market is covered by these alliances (Palmer, 2009). In fact, USA is the only market where it is operating without any sort of alliance. Nissan ¶s biggest reason for alliances is gaining knowledge. It forms an alliance with a local company or the company which knows the market whenever it enters a new market. The alliances are also made to share technical and management expertise. Nissan follows a 4G strategy for global coordination [11]. Various components of 4G strategies are: 1. Global Training Centre: Its focus is global standardization of training tools and best practices to be implemented at all sites. Its global training centre is located in Japan. The hierarchy at the training centre is Global master trainer at the highest level followed by master trainer, local trainer, and operators in the same order as decreasing level. . Global Production Engineering Centre: Its focus is quality Evaluation with Data Data Transcription to Mass-production. 3. Global Launching Expert: It diagnoses/ evaluates preparation status give practical support. 4. Global Package Design Centre: It works towards efficiency improvement in logistics through digitalization. Nissan ¶s future global plans focus on emerging nations mainly BRIC countries. Nissan plans to follow a multi-pronged approach with a network of alliances to manufacture a complex array of future products in all classes upto eight tonnes gross vehicle weight (Palmer, 2009). Nissan wants to develop its range of LCVs and become the largest supplier of Light Commercial Vehicles (LCV). Strategic alliance with Ashok Leyland in India is done keeping LCV in focus. Although USA and Japan are still one of the big markets for Nissan but these markets have matured and the future of Nissan depends on its success in emerging nations. STRATEGIES IN EMERGING NATIONS Most of the companies in today ¶s world are moving to developing countries as they are the fastest growing markets while the developed markets have matured and their growth have come to stage to be counted as standstill. Automobile companies have also followed the suit and started to look towards the emerging nations. Companies like GM, Volkswagen, Toyota, Honda, BMW, Nissan-Renault have already entered into major developing countries like Brazil, China, India and Russia. BRIC countries line as the top priority markets for Nissan and many of their global strategies revolve around these countries mainly China, India and Russia. a. China: Nissan entered into China in 1972 with the export of Cedric Sedan. But it established its unit only after 30 years in 2002 by forming an alliance with Dongfeng Motor Corporation. Together, they established a 50-50 joint company, Dongfeng Motor Co. Ltd. (DFL) in 2003 [7]. The alliance helped Nissan to establish itself in Chinese market. Dongfeng already had established network of agents and dealers and had expertise in commercial vehicles. As a result, they were able to offer a full product lineup of both passenger and commercial vehicles, the only company to do so in China. Nissan is currently the 5th largest automobile company in China. It saw a tremendous increase in growth of sales of 39% in 2009. Infact, China was the only market where Nissan attained profits during recession. Currently, Nissan is preparing the ground for Renault ¶s entry into China in 2010 so that their alliance can further strengthen their position in China. China is considered the most important market by Nissan due to its profitability and growth and that ¶s why Nissan has a special focus on China. China is the largest automobile market in the world and is booming since last two decades [14]. Most of the big players have already entered into Chinese market and few left are also planning to enter. With the rise in automobile manufacturers, the competition in the market will continue to be fierce. Nissan is planning to continuously introduce new models with advanced technologies to exceed the customer needs and maintain its strong presence in the market. Nissan is planning to expand its operations in China to meet the growing demand and has setup a new plant in Zhengzhou which is expected to start producing vehicles from late 2010 (Palmer, 2009). With the successful launch of LCVs in China, Nissan is planning to launch six more LCVs by 2012 some of them coming from the new plant. The alliance is also increasing its number of dealers mainly in inland areas where vehicle concentration is still low and potential for growth is high. Nissan also works to train its dealers in China to increase customer satisfaction. Apart from fulfilling the needs of Chinese market, Nissan is also planning to export some of its vehicles including LCVs and is working with the government in this area. b. Russia: Russia is another emerging market which is on the priority list of Nissan. It is the most important market for Nissan in Europe. Nissan entered Russia by importing its vehicles from neighbouring countries. Realizing the market potential of Russia and unmet need of LCVs, the company started to import LCVs in 2008. In 2008, the firm decided to establish a plant in St. Petersburg to meet the growing demand of Nissan ¶s cars in Russia and to avoid the high import duties. Nissan followed the same strategy of joint ventures in Russia as well to enter the market. Nissan-Renault made a strategic alliance with AvtoVAZ by taking 25% stake in it [17]. AvtoVAZ is the biggest player in the market with around 28% market share. The JV was done so that Nissan-Renault can use the market expertise of AvtoVAZ and its strong established distribution network. AvtoVAZ would also gain by the advanced technologies used by Nissan-Renault. This alliance was made to reduce risk for Nissan as the market for the firm was new and different and Nissan wanted to learn the market with the help of its local partner. Russia as a market for Nissan was booming until recession hit the world. Sales of Nissan declined by more than 50% in the period [4]. But situation has started improving in 2010 and Nissan is ready to grab the opportunity. Future strategies for Russia Nissan is ready with its big plans in Russia. It is planning to increase its market share from 5. 7% to 7% by the year 2013. It has set up manufacturing plant to build Nissan Teana and XTrail, its most successful cars in Russia. It will also get its products assembled in one of the manufacturing plants of AvtoVAZ. The reason for internal manufacturing is that it is the Nissan ¶s policy to be close to its priority markets. Nissan wants to utilise the benefits of being close to market production. It also allows them to have more flexibility in adapting to the changing market needs. Apart from this, it will also reduce the cost of the cars which are being imported currently. Nissan is working closely with its partner AvtoVAZ to gain 40% combined market share by 2014 and be the most powerful group in the market. To increase its power, Nissan-Renault is also planning to increase its stake in AvtoVAZ [19]. The current capacity of the plant established by Nissan is 50,000 units which it will expand once the demand gets stabilised in Russia after recession [8]. Nissan, which has launched LCVs in 2008, is aiming to be the largest player in the LCV market by 2012. Some of the most ambitious plans Nissan has for its LCV division are currently being put in place in Russia. Company is planning to extend its range from two products to six products by the end of 2011, by which time the local market is expected to be the largest in Europe overtaking Germany (Palmer, 2007). Nissan is also planning to produce a budget car in alliance with AvtoVAZ to cater the mass market. c. India: Another market India holds even more promise for Nissan over the longer term, but it will have to start there from its current minimal presence. Indian automobile industry is one of the fastest growing industries in the country. It is the ninth largest producer of vehicles and the largest small car producer overtaking Japan [15]. It is also one of the largest exporters of automobiles mainly to Europe and Africa. The industry showed strong market growth even in recent difficult times. One of the most important factors for India ¶s future growth as an automobile market is that its vehicles penetration ratio is very low even lower than most of the emerging nations. The prospects of automobile industry in India can be further analysed with the help of its PESTEL Analysis. Table 1 : PESTEL Analysis of Indian Automobile Industry Political Factors Factor Impact Approval of foreign equity Positive investment upto 100% with no minimum investment criteria Emphasis on RD activities Positive giving a tax reduction for inhouse research and RD Importance a) Attracts multinational companies to invest b) Strategic alliance not forced on companies a) Promotes RD at a cheaper cost than other parts of the world b) Attracts companies to open RD centres Emphasis on making India Positive hub for small cars Economic Factors Factor Increasing per capita income ) Assistance for small car companies Impact Positive Cheaper and easier finance Positive scheme Continuous growth in GDP Positive Importance a) Increases the buying power of people b) Increase in customer and sales a) Allows people to purchase vehicles easily b) Increases the sales a) Tells that overall economic environment is favourable Social Factors Factor Impact Growth in urbanization and Positive upward migrat ion of household income level Rise in education employment and Positive Indian people are very well Positive/Negative informed and emphasize on value for money Importance a) Major car market lies in urban India b) Allows more people to purchase vehicles a) More employment means more money and hence more market a) Difficult to fool customers b) Forces company to keep the price low c) Promotes market for small cars Technological Factors Factor Impact Advanced technologies Positive/Negative getting developed like hybrid engines Importance a) Development of better cars b) Increases competition c) Difficult for smaller players to survive with big global players known for their technology d) Increase in operational efficiency Developing India as a testing Positive hub : NATRIP ) Support of government in the project b) Enhance RD and technological advancements Environmental Factors Factor Impact Less polluting engines being Positive/Negative promoted Importance a) Leads to advanced technology and better cars b) Increases the cost of the companies and hence the price Legal Factors Factor Impact Well established regulatory Positive framework Importa nce a) SIAM is part of the regulatory rules b) Leads to better regulatory rules a) Operational problems b) Neither workers nor management knows completely about the law c) Leads to exploitation of weaker group Existing complex labour laws Negative The PESTEL Analysis shown in Table 1 clearly indicates the strategic importance of Indian automobile industry in the global arena. This is one market which can change fortunes for any automobile company including Nissan. Nissan realised this and decided to enter the market on a large scale. The strategies of the company are currently in the preliminary stage and are being worked upon. Nissan has a very minimal presence in India and is unaware of the market conditions as it is different from most of the markets where the firm is operating. This is the reason why Nissan-Renault has gone for three strategic alliances in India. It has made an alliance with Mahindra Mahindra, Bajaj and Ashok Leyland. Nissan is also planning to make India global hub for small cars which is a good move considering its location and availability of resources and trained people. Nissan started its operations in India in 2005 with the launch of Nissan X-Trail followed by Nissan Teana in 2007. It currently imports fully imported built models. Nissan decided to fully venture into Indian market in 2009 and set up a manufacturing facility in Chennai with Renault which will start production from mid 2010. The company inaugurated the plant in March 2010 which will undergo production from May 2010 [9]. Nissan-Renault alliance has invested $990 million in the plant with a capacity to produce 400,000 cars. The first vehicle to be produced will be the new Nissan Micra, a global sub-compact car. It is destined for the Indian market as well as for export to over 100 countries in Europe, the Middle East and Africa. In 2011, the plant will start production of the Renault Koleos and Fluence, both destined for the Indian market. It has also partnered with Bajaj Auto to manufacture an entry level car priced at around $2500 [20]. It is constructing a new plant in Pune for the manufacturing of same. The third venture of Nissan is with Hinduja Group owned Ashok Leyland. The alliance has started constructing a plant near Chennai which will build light commercial vehicles and their powertrains (Palmer, 2009). The major focus of the alliance is towards producing LCVs. Nissan is still building on its capacities and products in India and they will make strategies and tactics completely after they decide upon the complete product line [16]. RECOMMENDED STRATEGIES FOR NISSAN Potential Market: Nissan has kept its focus on emerging nations mainly China, India and Russia. Apart from these, Nissan should also pay attention towards South American market. South America has a huge market potential for automobile industry. Ignoring such a huge market can prove disastrous for a company. Nissan currently has a manufacturing location in Brazil to cater the South American market. But one location is not enough for such a huge market. They need to setup atleast one more manufacturing location preferably in Argentina as it is the second largest economy there with a good domestic market and favourable conditions to setup a plant. Nissan just needs to give more attention to the South American market before it is fully captured by other players. China: China is the most important market for Nissan and the company has been doing well over there in the recent past. Their strategies have paid off well in China and they should continue with the strategies. Nissan should also try to use its business model of China in other countries. Nissan should try to increase its capacity in China and use it to export its vehicles to other places. Russia: They should keep their strategies on hold for Russia for sometime till the market stabilises. Russia is a volatile market and Nissan should wait for a year or two before it decides to increase the production capacity of its plant and expand its product line. In the mean time Nissan can learn and understand the market of Russia with the help of its partner. Russian market is complex and needs to e understood completely before making a fully fledged entry into the market. India: Because of low awareness about Indian market, Nissan went for alliances. The only problem was that they made just too many alliances which made their operations and business strategy complex in India. It also led to the differences with their old partner Mahindra Mahindra. Nissan should give its attention towards its allianc e with Ashok Leyland with which they can launch full range of product lines. Nissan aims to be the market leader in LCVs and Ashok Leyland alliance can help them in achieving this faster. Nissan also needs to launch its entry level car with Bajaj as soon as possible before Tata Nano completely captures the market. Bajaj doesn ¶t have an experience in car manufacturing nor have enough capacity to support Nissan ¶s ambitions. Their advantage over other partners is that they have the strongest network of dealers and agents in India. They are present even in the rural India due to their strong two wheeler market which can prove to be very useful market for their entry level car. Nissan should use Bajaj to expand its network throughout India.