Automobile industry in Malaysia and India
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Published: Fri, 12 May 2017
Firstly, International Business is the performance of trade and investment activities that have been done by firms across national borders when it takes place between two or more countries. It is also known as cross-border business. Individual firms, governments and international agencies are involved in the international business transactions. The assets that exchange by firms and nations mostly are physical and intellectual assets which including products, services, capital, technology, know-how and labor. Moreover, international business gives us the opportunity to access the products and services from all around the world and it could profoundly affects the quality of life and the economic of the country (Cavusgil et al. 2008).
DEFINITION OF GLOBALIZATION
The definition of globalization is the deepening relationship and broadening interdependence among people from different parts of the world, and especially among different countries (Daniels et al. 2007). The categories that involves in globalization are technological, economic, political, and cultural exchanges made possible largely by advances in communication, transportation, and infrastructure.
Besides that, there are two types of integration which is negative integration and positive integration. Negative integration could refer to barriers between countries being removed such as tariffs and quotas while positive integration could refer to standardizing international economic laws and polices (The non-hub story 2010).
MULTINATIONAL COMPANY (MNC)
Multinational Company (MNC) also known as Multinational Corporation is the most important type of the focal firm. It is a direct resource with the various business activities that which is through the subsidiaries and the affiliates that which located in the multiple countries. MNC has its own worldwide of the network and it has corporate with the numerous of the suppliers and the independent business partners of the abroad. MNC is among of the leading participants and many small and medium-sized enterprises participate as well.
Multinational company can be categories into 3 elements which is horizontally integrated multinational corporations, vertically integrated multinational corporations and diversified multinational corporations.
Horizontally integrated multinational corporations
Corporations that manage production establishments in different countries that produces similar products.
Vertically integrated multinational corporations
Manage production establishment in certain countries to produce products as input to its production establishment in other countries.
Diversified multinational corporations
Production Establishment is either horizontally or vertically integrated.
HISTORY OF HONDA
Honda is the world’s largest motorcycle manufacturer since 1959 and the world’s largest manufacturer of internal combustion engines measured by volume, producing more than 14 million internal combustion engines each year. It is established by Soichiro Honda in 1948. Due to the World War II, Soichiro Honda developed and produced small 2-cycle motorbike engines. It is because during that time Japan was facing gasoline storage and they needed inexpensive transportation that need less gasoline (The non-hub story 2010).
Now, the ranking of Honda in automobile manufacturer around the world is number sixth. The first Japanese automobile manufacturer that releases a dedicated luxury brand is Honda. Besides that, Honda is also producing lawn and garden equipment, tillers, robotics, marine engines, personal watercraft and power generators. The headquarters of Honda is located at Minato, Tokyo, Japan (Wikipedia 2010).
Macro-environment for automobile industry in host country (PEST analysis):
Firstly, the automotive sector is an important yet complicated sector. However, they could use PESTLE analysis to help them in making strategies. PESTLE analysis is a tool that can help organizations making strategies by letting them know about the external environment so they could plan their operate time whether they want to operate now or operate in the future. PESTLE stands for political, economic, social, technological, legal and environment.
The people will see a continued progress in the ruinous steps which have forced the industry into a social politico economic corner. Whether this is related to flat demand or to the industry’s creation of an ever-wider range of vehicles that many buyers seem to care little about, there is a problem. The manufacturing is like linked approach to the policies of governments, the earnings of banks. Little wonder then that so many emerging countries are keen to develop an auto sector or that there is such a political pressure to protect it in the developed countries. The world’s vehicle industry is currently dominated by little more than a handful of firms, each wielding colossal financial, emotional and political power. The manufacturing closely to dealing with political institutions has not always been bright. It tends to be good on technical issues, although it has not always fully presented the longer-term options, but in order to make the choices and their clear.
For much of the developed world, and increasingly for the developing world, the automotive industry is a pillar industry, a flag of economic progress. Without an automotive industry, it is impossible to develop an efficient steel business, a plastic industry or a glass sector – other central foundations of economic progress. The automotive industry has been a core industry, a unique economic phenomenon, which has dominated the twentieth century. However, the industry now suffers from a series of structural schisms and has become riddled with contradictions and economic discontinuities. For the capital markets and the finance sector, it has lost a lot of its significance, as a result of ever declining profits and stagnant sales. The proliferation of products means that it has become hopelessly wasteful of economic resources. While all these and more sound like a very gloomy assessment of such a vast economic phenomenon, the industry is not in the end despondent. A different future is possible for the industry, a highly desirable one.
The world’s automotive industry affects the society as a whole. It employs millions of people directly, tens of millions indirectly. Its products have transformed society, bringing undreamed-of levels of mobility, changing the ways people live and work. The social value of the additional mobility that this industry brings involves the value of the people being able to commute over longer distances easily, among many others. For most of its existence the motor industry has been a model of social discipline and control and it is not just that the auto sector offers a ‘pillar’ of something else. There are, on the other hand, particular social issues to address in many developing countries, often those that are the result of an undertone of religious faith. The automotive industry has the role to play in helping develop the mobility of such countries and it can be achieved at an acceptable social cost of the country is prepared to learn the necessary lessons from those who have traveled this route before it, and to make the necessary investments.
The automotive industry works on a scale so awesome and has an influence so vast that it is often difficult to see. The level and diversity of technologies that it must deploy are increasing, which imposes both new investment burdens and new uncertainties and risks. Roughly a million new cars and trucks are built around the world each week – they are easily the most complex products of their kind to be mass-produced in such volumes. The industry uses manufacturing technology that is the cutting edge of science. But still, the potential for developing coordination skills, intellectual capabilities and emotional sensitivities through electronic technologies remain far from fully exploited. There are numerous additional near-term technological opportunities to adapt the automobile to changing energy availability. The possibilities suggest that automotive technology is unexpectedly robust and provides a powerful defence against energy starvation even if the real price of oil climbs steadily during the next couple of decades.
The automobile industry is subject to numerous technical directives and regulations, as well as legislation of a more legal nature. The legislation covers areas such as competition law, intellectual property law, consumer protection and taxation, and emissions (air quality and fuels). When the auto parts industry reached full development, accelerated technological efforts were made to create a web of local suppliers that would make it possible to meet the growing legal requirements for the national integration of production.
Other than the vehicles themselves, and the roads and fuel needed to run them; the business is intricately tied to the manufacture of a wide range of components and the extraction of precious raw materials. Indirectly, it brings people road congestion, too many fatalities and a wave of other environmental troubles. The effect to the automotive companies are that they needed to establish R&D centres to take advantage of research infrastructure and human capital, so that they can develop vehicle products locally to satisfy the requirements of the environmental and safety regulations more effectively.
PEST of Honda in Malaysia
Malaysia is a developing country. From the year 1960 to 1971, the country’s economy was dependent on farming and primary commodities such as rubber and tin. Nowadays, Malaysia is a middle-income country with a multi-sector economy. The GDP growth rate was 5.8% in 2006 and 5.9% in 2007. Domestic demand and dynamism in exports are the main reasons for the economic constancy in Malaysia. Malaysia’s economic is now depending on industry, agriculture, and services sector, which contributes nearly 115% to the GDP at 2007. Along with the research, Malaysia is one of the world’s main exporters of vehicle parts, accessories and components and to Thailand, Singapore, Taiwan, Indonesia, Japan and UK. The automobile parts industry in Malaysia is maintaining the high reputation among their valuable customers locally and also in other country. Engineering capabilities, industrial master plans, and technology advancements are the main factors for the high reputation. The demand for Malaysia’s automobile parts are continually increasing, especially among major automobile companies like Mercedes, Mazda, Ford, General Motors, Suzuki, Nissan and Mitsubishi. Besides that, there are 343 automobile parts manufactures in Malaysia. Is up until now, RM 8.2 billion was invested by automotive components and parts manufactures in auto parts industry (MSC, 2007).
Malaysia is dedicated to fulfill its multilateral commitments under WTO and AFTA and has taken steps to liberalize its duty structure. Other measures have been taken as well. Since 2001, the equity policy for the automobile sector has been relaxed to allow up to 51% foreign equity on a case by case basis. Besides that, in Malaysia manufacturers and assemblers are currently free to multi-source from the most competitive suppliers globally, uninhibited from local content policy requirements (ELM, 2007).
Malaysia’s population was estimated at 25.2 million in 2007, every year’s growth rate of 1.7 percent. More than 60 percent of the population in Malaysia is Malays and other is Indians (8 percent) and Chinese (32 percent). Approximately 44 percent from the total population is consider to be trained or skilled workers with basic qualifications or higher. Malaysian’s employees work a minimum of 48-hours per week and also have more holidays compared with China. Until now, the labors costs are still relatively standard compare with other countries in Asia, including Vietnam and China. In addition, Malaysian’s salary can be divided into two types: one is monthly minimum wages and the other is average wage for an employee in the manufacturing industry (Kiat, 2008).
Malaysia’s infrastructure is good and presents considerable benefits to automobile supply chain operation. Malaysia has 80,328-km road network, highways, and main roads. This mode of transport represents 90% of the goods and passengers traffic in Malaysia. In addition, Malaysia has rail network of more than 2,000 km, mainly located in Kuala Lumpur and along the coast of the Strait of Malacca. The railway service in Malaysia is continuously improving by the government. Such as KTM and LRT. Besides that, there are three main ports and two airports in Malaysia currently growing in terms of exports. Such as KLIA and LCCT. (Kiat, 2008).
PEST ANALYSIS OF INDIAN AUTOMOBILE INDUSTRY :
Indian government had launched the auto policy for its Self Sustained growth. The government also allowed the foreign equity investment up to 100% formulation of fuel policy to promotes for vehicles propelled by AES
The tax wills deductions up to 150% for in house R&D activities. Reduce the interest rates for export financing. Economy of India has grown over 8.5% per annum for last 5 years. The industry sector has grown 8-10 % for last few years. More than 90% CV purchase is on credit.
The social changed lifestyle of people leads to increased purchase of Automobiles. The Average family size is 4 which make it favorable to buy a four wheeler. 4th largest economy on purchasing parity index increase in per capital income levels. The Indian customers are highly educated and well informed and they are price sensitive. They choice for small and compact car preference for Fuel efficient cars with low maintenance.
Technology is more and more emphasis on R&D. The government is promoting the NATRIP (National Automotive testing and R&D Infrastructure Project) to support the growth of Auto industry in India. Customized solutions can be provided with proliferation of technology. To entry of global brands both product and production process has been improved.
ACTUAL AND POTENTIAL IMPACTS OF GLOBALIZATION TO HONDA
Movement of capital
If the company’s capital flows around different countries, the production base of a developing economy would get to enhance. Then, it could enable savings for the entire globe and exhibited high investment potential. It is very important for the country which developing their economy. Developing countries would prefer more on foreign direct investment rather than portfolio investment because portfolio investment does not have a direct impact on the productive capacity expansion.
Honda will become more famous when they globalize their company. It will create the opportunity to let the public know more about this company. For example like what is the item that selling in the company, where is their headquarters and etc. Since Honda is producing variety of items, it will be better for public to know the details about this company.
When Honda has been globalized, the brand awareness of Honda will definitely increase so it could attract more specialist or industry people who wanted to join their company and create new items with them. Besides that, it could help to improve the technology of the world. It is because whenever Honda had come out with a new item, they will sell or share it in all around the world. Therefore, even though the country does not create that item, they also have the opportunity to use it. So it means that the technology of the world will be increasing.
Reduce global warming
Honda had produced Hybrid vehicles in order to solve our earth problems like reduce the air pollution and the amount of petroleum which is getting lesser and lesser. Hybrid vehicles are encouraged to use by public as it could at least help out a little for our earth to reduce the global warming issues.
STRATEGIES TO OVERCOME THE POTENTIAL IMPACTS OF GLOBALISATION
Build new office or factory
In order to create Honda awareness, Honda should build more office and factory at other area where Honda does not have any office or factory at there. It could make the public to have more working opportunity and at the same time they will more understand about Honda. Besides that, Honda could also try to export their produced items to other potential country which they have not export any of their items to that country in order to create awareness.
In order to create more and more technology items, Honda should hire more specialists or people who familiar with this industry to join Honda. It is because when they create new technology item, it will make our life easier. For example, Honda had created the ASIMO robot to assist us with our daily life. It can also help the people who are not convenience to move around or disable person to do those daily tasks such as pour water, sweep the floor and etc.
Create variety of items
In order to reduce the global warming problem and at the same time can satisfy the customers’ needs, Honda have to create variety of items for them to choose. Therefore, everyone will use their items and help to save our environment. It can benefit both sides which is Honda and the earth environment. It is because if Honda really does that then Honda could earn the profit while the environment is getting protected with lesser pollution. For example, Honda could design more Hybrid vehicles in order public could have more choices to choose when they choosing Honda Hybrid vehicles.
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