STRATEGIC MANAGEMENT REPORT
One of the most successful and wealthy industries globally is the Automotive industry which includes companies and their activities that have to do with the producing of motor vehicles (main parts such as bodies-engines). The history of this specific industry differs comparing it with the history of other industries because of the effects it had on the global economy throughout the 20th century. Despite the fact that the industry’ s origins was in Europe in the first half of the century, it was dominated by the U.S and later on Japan and countries of west Europe developed and became chief manufacturers and exporters, giving them the chance to develop their economies.
Nissan is one of the largest companies in the Automotive industry. The company was founded in 1933 named as Jidosha Seico Co., Ltd and was renamed the following year after merging with another Japanese producer, the new name was Nissan Motor Company, Ltd. The company produces and sells over 3.7 m cars in more than 180 countries worldwide. It is amongst the three biggest companies in Japan and in the five largest in the global market, producing not only passenger cars but a wide variety of vehicles to. Nissan by developing a unique strategic plan is aiming to develop and increase further their market share in order to be more successful in the future not only in the domestic market but in the global market too. As we can see Nissans market share is shown in the figure below.
2.1 GENERAL ENVIROMENT
2.1.1 SWOT ANALYSIS
According to Grant, M.(2002), the allocation of the external and the internal factors of a company is commonly used for analyzing business strategies. The SWOT analysis (strengths-weaknesses-opportunities-threats) intends to point out the most important external and internal factors that are essential for the organization to accomplish their objectives. This analysis groups important information into to major categories, the external factors (opportunities-threats) and the internal factors) strengths-weaknesses).
A SWOT analysis for Nissan Ltd. will be carried out below:
According to business Week Global Brand Scorecard Nissan is the fastest growing automotive brand. The companies equity valued in 2006 was over 3000 million dollars. The strength of their brand gives them the competitive benefit towards their rivals and can prevent them from developing faster than them
The strong financial position of the company is one of their main strengths. Nissan experienced a huge growth between the years 2002 and 2006 and that gave the opportunity to compete in the European market despite the markets saturation. Nissans financial growth is shown below (figures are in USD Millions): -
Source: Nissan annual report 2005-06
Analysists believe that diesel market is going to increase rapidly in Europe in the next few years and by the reason that Nissan’s lack of diesel technology conducts one of the companies’ weaknesses. This fact, lead us to the fact that diesel accounts only the 0.4% of the vehicles that are sold in Japan and this kind of technology is very increasing and already more developed than Japans in Europe, Nissan will be confronted and face problems when wanting to dominate the European Market, as it is referred by Rowley, (2006).
A second weakness of Nissan is that they depend to much on markets away from their headquarters. Over half of their production units are sold abroad and less are sold at home. The risk that is taken by the company is that by depending on markets of foreign countries they might face a decrease in their revenues because of financial dealings (currency ups and downs) or the different government policy changes.
Because of Nissans headquarters being in Japan an opportunity for further expansion is automatically born. Because of employees gaining higher payments the demand for luxury items such as cars has increased rapidly. In the broader Asian market but in China and India especially car sales are estimated to rise causing car manufacturers to “look east”. If Nissan can tap this newly developing market they will have great benefits.
On the 27th of march 1999 a unique business model was launched. Renault and Nissan combined their forces in an alliance that had important value the companies and by combining their resources they have succeeded in developing a more competent organization. The results of this alliance for Nissan was the reduce in productivity costs and in the negotiation power of their providers.
The UK sterling is one of Nissans main threats. The constant currency fluctuations have forced not only Nissan but other companies such as Ford to make cuts in their workforces because of fear that Nissans productivity in particular could drop by 50% in years to come. Nissans Carlos Ghosn (2000) says that they cannot make a decision until they have some guarantees they can count on for future.
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 by nearly 30% (London Metal Exchange, 2006). Nissan has taken steps to reduce the effect of rising steel prices; in 2000, Nissan began using hot dip zinc coated steel and converted to less expensive steel in 2002, which saved about $16 million per year (Nissan Motor Co., 2004). This however, has done little to reduce the upward pressure on vehicle costs and prices. As this increase in cost has been passed on to the consumer, demand for new vehicles has reduced. This threatens Nissan's viability in the region.
According to Armstrong, M (2006) the PEST analysis means Political, Economic Social and Technological and describes a structure of macro environmental factors that are used when scanning different environments. It is part of the external when constructing a market search.
In the past recent years, Nissan have developed a frame work called the ‘’ Orchard” concept. According to this concept the company is developing technologies in order to make their vision come true, this vision is to “enrich people’s lives”. By reducing car accidents or taking under consideration global environmental issues.
An other technological breakthrough for Nissan was made when in 1999 the alliance with Renault was made. This coloration in technologies boosted Nissans sales and gave them the opportunity to evolve into a third generation car retailer and produce electric cars, according to Blance S. (2005)
In the years upcoming buyers are going to demand cars that are technologically up to date because the awareness of the environmental danger our planet is in. for this reason, companies such as Nissan are wanting to manufacture cars that are more friendly to the environment and will not use energy sources such as petrol or gas but electrical power that are not as harmful for the environment. Electrical power is not harmful for the atmosphere and for that reason automotive companies are wanting to base their energy supplies on that.
Nissan has already launched some car models that are adapting to this new revolutionary source of energy. The Nissan NUVU and the Nissan ALTRA ev. are the first two cars that have been produced by the company that work with electrical energy, with more to come. (appendix C)
2.2 CMPETITIVE ENVIROMENT
2.2.1 PORTER 5 FORCES
As Porter's 5 Forces analysis deals with factors outside an industry that influence the nature of competition within it, the forces inside the industry (microenvironment) that influence the way in which firms compete, and so the industry’s likely profitability is conducted in Porter’s five forces model
The original competitive forces model, as proposed by Porter, identified five forces which would impact on an organization’s behaviour in a competitive market. These include the following:
• The rivalry between existing sellers in the market.
• The power exerted by the customers in the market.
• The impact of the suppliers on the sellers.
• The potential threat of new sellers entering the market.
• The threat of substitute products becoming available in the market.
Understanding the nature of each of these forces gives organizations the necessary insights to enable them to formulate the appropriate strategies to be successful in their market (Thurlby, 1998).
The rivalry between existing sellers in the market mainly focuses on the price variations and the variations of products that other competitors can not compete with. Each company including Nissan try to develop products that are revolutionary comparing to other brands such as designer cars like the Nissan Micra. Nissan is not considered as one of the luxury brands such as BMW and Mercedes and because of that the company focuses on the range of customers that can afford these vehicles. This is the reason why Nissans sales have increased massively in the last years.
The power that the customers have the fact that gives Nissan the influence it has on the market. Gaining the customers trust and making them feel that the firm does not bind them in any way makes the customers purchase merchandise from them. Buyers power is shown when firms like Nissan change their policies such as price ranges in order to be able to satisfy them. eg. The company has to consider that the budget of the customers is changing because of the economic crisis and they are not able to dedicate as much money as they would in other circumstances.
Specifically in this industry, the dependability on the suppliers is big because of the saturation there is in the market. every company including Nissan has to be fully equipped so the needs of the customers are met. If the suppliers do not provide the necessary equipment to the company then the effects will be vital. the power of the supplier gets even bigger if the equipment the company needs are only developed by that single supplier.
The threat of new entrants in the industry of car making is reduced when looking at other industries therefore Nissan is in no immediate danger.. threats of new entrants consists of the likelihood of retaliation of existing industry retailers the economies of scale and others. Looking at every aspect of this sector, it is extremely difficult for an other car company to invade into the industry. One of the ways of a new company succeeding in this industry is to produce a type of vehicle that comparing to other similar type in other companies is much better, but still the loyalty customers develop over some brands can not be overtaken.
When speeking of the automobile industry many different brands of cars coe to mind, so it is easy for us to conclude that the threat of substitute products is big. Nissan in this circumstance can depend on its high quality products and to its flexible proce range that consist a trustworthy relationship with their customers. Constantly evolving technologicly and increasing quality can be factors that will draw customers to them instead of leading them to other companies.
2.2.2 VALUE CHAIN
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings:
(1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and
(2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities.
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others
What activities a business undertakes is directly linked to achieving competitive advantage. For example, a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition. By contrast, a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used.
3.1 BUSINESS LEVEL STRATEGY.
3.1.1 What is business level strategy?
The purpose of business level-level strategies is to reach above average profits by focusing on customers needs satisfaction. By take advantage of essential competencies such as service markets, companies aim to provide value to buyers and increase competitive andvantage. Questionas that are asked while developing a business level strategy are questions like Who is going to be served? What needs do our customers have? How their needs are going to be met and satisfied.
2. Differentiation - Value is provided to customers through unique features and characteristics of an organization's products rather than by the lowest price. This is done through high quality, features, high customer service, rapid product innovation, advanced technological features, image management, etc. (Some companies that follow this strategy: Rolex, Intel, Ralph Lauren)
Create Value by:
Lowering Buyers' Costs Higher quality means less breakdowns, quicker response to problems.
Raising Buyers' Performance Buyer may improve performance, have higher level of enjoyment.
Sustainability Creating barriers by perceptions of uniqueness and reputation, creating high switching costs through differentiation and uniqueness.
Porter's Five Forces Model Effective differentiators can remain profitable even when the five forces appear unattractive.
Rivalry Brand loyalty means that customers will be less sensitive to price increases, as long as the firm can satisfy the needs of its customers (audiofiles).
Suppliers Because differentiators charge a premium price they can more afford to absorb higher costs and customers are willing to pay extra too.
Entrants Loyalty provides a difficult barrier to overcome. Substitutes (trans. 4-26) Once again brand loyalty helps combat substitute products.
3.1.2 PORTER GENERIC COMPETITIVE FORCES
Porter's Generic Competitive Strategies (ways of competing)
A firm's relative position within its industry determines whether a firm's profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or differentiation. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus. The focus strategy has two variants, cost focus and differentiation focus.
1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost advantage are varied and depend on the structure of the industry. They may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. A low cost producer must find and exploit all sources of cost advantage. if a firm can achieve and sustain overall cost leadership, then it will be an above average performer in its industry, provided it can command prices at or near the industry average.
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price.
The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.
The focus strategy has two variants.
(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b) differentiation focus a firm seeks differentiation in its target segment. Both variants of the focus strategy rest on differences between a focuser's target segment and other segments in the industry. The target segments must either have buyers with unusual needs or else the production and delivery system that best serves the target segment must differ from that of other industry segments. Cost focus exploits differences in cost behaviour in some segments, while differentiation focus exploits the special needs of buyers in certain segments. (appendix A)
The Nissan Chair for Corporate Strategy and International Competitiveness aspires to become a global leader for research in these two areas of Business Administration. Our research focuses primarily on the interdependent relations between the competitiveness of countries and businesses.entre la competitividad de los países y la de las empresas.
Holder of the Chair
The Nissan Chair for Corporate Strategy and International Competitiveness develops and promotes all research and teaching methods that affect business management from an international perspective, or simply from the perspective of general management.
The Nissan Chair for Corporate Strategy and International Competitiveness has conducted research in the following areas:
1. The process of globalization. The local origins of international competitiveness.
2. Competitiveness and profitability in the Spanish financial sector. The impact of information technology in general, and of the Internet in particular, on the financial services sector.
3. Integration in processes of mergers and acquisitions.
Other projects have focused on the analysis of competitiveness by sectors, States, and regions.
Holder of the Chair
Eduard Ballarín, PhD in Business Administration from Harvard University, and Economics from the University of Barcelona, is the current Chair. Among his principal teaching responsibilities include General Management courses in the PADE, PDG and EMBA at IESE’s campus in Madrid. He is also responsible for the modules on Corporate Strategy in different international programs, such as the Global Program for Management Development (GPMD), which IESE offers in collaboration with the University of Michigan, and the Program for the World Bank, which is offered as part of an alliance with Harvard University, Stanford University, and INSEAD.
Ballarín is co-author of the books "Fusiones y Adquisiciones: Un Enfoque Integrador" (“Mergers and Acquisitions: An Integral Focus”) and "Contabilidad para Dirección" (“Accounting for Management”), and of numerous cases on banking issues, such as Banco Popular Español, Bankinter and Banco Santander Central Hispano.
Moreover, he participates in various consulting projects with numerous organizations on topics related to corporate strategy.
The Nissan Chair for Corporate Strategy and International Competitiveness directs the MBA course, The Microeconomics of Competitiveness: Firms, Clusters, and Economic Development. This program, created by Harvard Business School (HBS) Prof. Michael E. Porter, is offered simultaneously in more than 30 business schools all over the world, by way of a technological platform that connects HBS with the other business schools.
The course explores the causes of competitiveness and economic development from a microeconomic perspective. Like macroeconomic policies, the stability of political and legal systems and investment in human and physical capital create huge potential for competitiveness, and wealth is truly generated at the microeconomic level. The cases discussed demonstrate how the ultimate causes of productivity for a given region or country are the sophistication and productivity of businesses, the strength of clusters and the quality of the business environment in which one competes.
In the 2001-2002 school year, the Chair became, along with the Anselmo Rubiralta Center for Globalization and Strategy, the Spanish member of the Annual Report of The World Economic Forum, Global Competitiveness Report . The study uses two complementary approaches to analyze competitiveness: the perspectives of growth and the macroeconomic conditions of more than 100 countries.
Few would argue that one of the most remarkable automotive rags to riches stories of the past decade has been Nissan’s recovery from near bankruptcy. Controlled by French automaker Renault since 1999, Nissan has just reported another stellar year in terms of sales and financial performance, with an 11.1 percent operating profit margin and sales of 3.06 million vehicles worldwide.
Though astute financial policies have accounted for much of the Nissan rebound, the Japanese automaker’s sales success can be attributed in large part to another important factor: design.
After succeeding in the car market of the U.S, Nissan realized that the European market was a market that could bring in a large profit if the situation was handled in the correct way and by conducting a strategy that woul give them the results that they demanded.
Part of the challenge for Nissan Europe is its relationship with French parent Renault SA, which owns 44 percent of the Japanese automaker. The two operations need to work as a team, yet to avoid stepping on each other toes in the marketplace. Nissan’s European chief Patric Pelata said since Renault takeover in 1999, the Japanese company profitability problems in Europe have been fixed and he expected growth fro 2004 onwards. The signs are promising as last year Nissan saw European sales top 540,000 units, which was a 14 percent jump, the strongest of any major automaker on the continent.
The sales boost was founded on popular models like British-made Micra sub compact and the X_Trail sport utility sourced from Japan. Going forward, Nissan Europe will add six new models within two years, starting late this year with the Murano crossover, which has proven a hit in the U.S. since its launch in 2002.
It is essential for every company, therefore for Nissan also to develop a strategic plan that will fulfil its ambitions and will be able to make their ambitions into reality. In Nissans situation, the company is simply aiming for the top. The chairman of the company said “there is no point saying that we will get to the top if we have realized we can not” showing his high ambitions and expectations he has for Nissan. Conducting a strategic plan won’t be easy for company the size of Nissan but if we take under consideration the increasing growth rates i the past years it would not be an exaduration saying that it is only a matter of time until the company gets to the elite of car industry.
Henry. A (2008) Understanding Strategic Management. Oxford University, Oxford
Nissan, ‘Nissan Cars, Vans, Fleets, Services’ Available at http://www.nissan.co.uk
Nissan, ‘ Corporate information’ available at http://www.nissan-global.com/EN?COMPANY/PROFILE/HERITAGE/index.html
Finlay, P. (2000) Strategic Management: an introduction to Business and Corporate Strategy. Essex: Pearson Educated limited
Porter, M.E. (1979). How competitive forces shape strategy. Harvard Business Review
Blance, S (2005) Partering to explore. The Renault – Nissan alliance as forerunner of new cooperation patterns. 34(05), pp 657-672
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