Critical Analysis of Nissan Company - Assignment Example

Critical Analysis of Nissan Company Name: Course Name: Institution: Tutor: Date Executive Summary Globally, the automobile industry is one of the biggest ventures dominated by various companies among them the Nissan, the companies have established extensive markets worldwide coupled with competitive strategies that keep them afloat in these competitive industry. Analysts argue that the industry has experienced rapid acceleration since the nineties. Different manufacturers have adopted diverse mechanisms especially insight of global crisis that greatly affected the motor industry. Basically, the tremendous growth of the automotive industry has attracted several investors. According to Nag et al (2007, 4), long-term outlay demands an analysis of several factors that can easily aid in making a sound decision has contributed immensely to tremendous growth of automotive industry. This paper attempts to critically analyze corporate performance, financial performance and contextual factors affecting Nissan Company. Introduction Nissan has employed a number of strategies to survive and thrive in the competitive business arena. A critical analysis of these strategies reveals that Nissan consciously endeavor to promote tits competitive advantage while at the same time reduce factors limiting their maximum output. The following analysis demonstrate the strategies as well as the underlying issues within this strategies that Nissan face in the daily operations to ensure environmentally friendly practices, high business performance and good corporate governance. Corporate governance performance of Nissan Company Since its inception, Nissan Company has placed great emphasis on transparency both within and outside its corporate management. The company has relentlessly focus on the implementation of effective management in the pursued of achieving quantifiable commitments. Following the various ethical principles and government laws governing business operations in Japan, Nissan Company has embraced Internal Control Systems. The company’s Board of Directors relentlessly maintained good governance as an important aspect of administration. The company’s management has well defined cardinal roles of individuals in various departments in the pursued of achieving defined goals. The publication of policy matters and overall objectives of the company is done for the interest of all parties and more so the investors, accomplishments of are made public in a transparent manner. To achieve better results in this area, the company has formed an oversight board with supervisory roles. The board is also mandated to decide on critical business matters as well as monitoring duties carried out by individuals appointed as directors. The system relied upon formation of the board is clear and simple; this translates to a well defined authority in running of daily business of the company. In addition, several taskforce teams have been created to look into cooperate affairs (Monks, & Minow, 2008). The company’s emphasis on a transparent and accountable management has been strengthened the determination of” systems to ensure proper and appropriate cooperate operations” inline with existing laws. Moreover, a firm position has been taken against antisocial groupings with employees instructed to forward such matters to their seniors. Several companies are aware of the inherent risks that are present within the automobile industry; Nissan has gone a step further in reducing chances of their occurrence by detecting them early enough (Monks, & Minow, 2008). Nissan value its customers as evident by establishment of a well structured internal system that stipulates the modalities for handling client’s personal information (Monks, & Minow, 2008). A committee charged with the responsibility of safeguarding information has been formed alongside numerous in-house workshops. These steps are taken to enforce security while at the same time educating and encouraging employees to execute their duties diligently. While protecting the interest of its customers Nissan is fully compliant with Japan personal information protection act. Notably, the company recognizes the importance of protecting human life, the participation of Nissan in various calamities in Japan continues to be a major priority. The inclusion of an emergency plan within the companies business continuity plan (BCP) Environmental protection credentials Ideally, environment matters within the automobile industry continue to be an intricate issue with several proposals on how to conserve it. However, Nissan assumes a unique perspective in tackling environmental concerns. This company recognizes that the key elements affecting environment are air, water and soil pollution. In general, the company is steadfast in formulating measures that reduce air pollution; some of the key pollutants include (NOX AND SOX). Currently the company is grappling with the challenge of decreasing volatile organic compounds which are responsible for a huge percentage of emissions. To reduce these volatile elements, the company has resolved to switch to water based paints. Water is one of the most valued environmental resources in the world. In an effort towards realizing its conservation, Nissan has come up with various remedial measures which include reducing the amount of water used during production, recycling water, installation of control systems that regulate water wastage (Hill et al, 2008, 7). Noticeably, soil is regarded as one of the major factors of production, the company continues to fund research aimed at establishing the chemicals disposed on the soil where plants are situated. The company strives to conform to bans imposed on a variety of chemicals by environmental regulation bodies, for instance tetrachloethylene is one of the chemicals facing a ban. The practice of maintaining a record of all chemical components intended for use in manufacturing purposes creates an integrated environment that aid in monitoring levels of soil pollution .Waste management remains a pertinent issue in many companies especially in disposing materials used to transport vehicle parts. In full realization of risk posed by these materials, Nissan uses pallets made of wood in such transportation hence adopting the system of reusing the pallets as opposed to disposing them. Specifically, the “Nissan green procurement standards” puts supplies under obligation to disclose substances that adversely affect the environment with this information being used to cautiously handle these substances. Financial performance and prospects Arguably, the current automotive industry is highly competitive and this requires players to adopt systems that can keep them afloat in running their businesses. Part of the strategy adopted by Nissan is the establishment of competitive strategies that gives them advantage over their counterparts. According to porter (1980) a firm should seek to gain competitive advantage either through cost leadership, differentiation of products and focus. By and large, the alliance between Nissan and Renault has formed one of the largest manufacturers around the globe hence commanding a sizable percentage of the market. Evidently, Nissan is devoted in maintaining a tradition of improvement similar to total quality management, in the past the company’s European operations received commendation for continued improvement. Notably, the level of saturation in European market continues to increase amidst stiff competition, the company has adopted a strategy that seeks to differentiate its products as opposed to increasing the market share. Officials of the company have in the past postulated difficulties in gaining more market share (Houkokusho 2010, 8). Remarkably, the company has invested on programs aimed at improving quality in decision making. The close cooperation with Renault has been crucial in coming up with a program that target to improve manager’s skills. Financially, Nissan is focused on decentralization of vehicle production which in turn drastically reduces expenditure. A substantial funding has been allocated to support growth especially in countries with huge potential such as china and Russia. In the recent past the cost of operation in the automobile industry has increased, Nissan continues to explore openings for outsourcing most of its engineering work. The overall production process is maintained at its highest quality level. The company has a broad and open system where employees are motivated to think outside the box which helps in improving production. More time is spent in building correct processes rather than the product. Nissan opened its US $ 200 million plant in St Petersburg in June, 2009. This occurred at a period when the auto industry had considerably gone down but the company executives expressed optimism that the industry would pick with the recovery of major economies after the financial crisis of 2008/2009. The Nissan plant has a capacity of 50,000 units annually and started by assembling Teana models (Reuters, 2009). X trail SUVs were projected to be assembled beginning September 2009. In 2008, the car sales in Russia had overtaken Germany though the trend reversed early 2009 as an effect of the financial crisis (Houkokusho 2010, 12). The company’s profitability has been gradually increasing especially in the last five years. However, the company incurred losses during the second quarter of 2010 as indicated by the financial statements as presented below. FINANCIAL RESULT OF NISSAN MOTOR CO., LTD (1st and 2nd Quarter, 2010) Non-Consolidated Financial Statement (In millions of Yen) 3 months 3months change Net sales 1,056,104 1,069,258, 13,181 Cost of sales 868,318 887,552 (19234 Gross profit 187,786 181,733 6,053 Selling general and admin expenses 152,787 138,639 14,147 Operating income 34,999 43,093 (8,094) Interest & divided 132,996 1,726 131,270 Other non operating income 131,034 398 130,635 Non operating expenses 14,846 12,356 2,490 Interest expense 2,345 2,782 (437) Amortization of retirement benefits 2,013 2,217 (204) Foreign exchange loss 4,408 227 4,180 Other non operating expenses 6,079 7,128 1,048 Ordinary income 153,148 32,463 120,685 Special gains 23,885 22,004 1,880 Special losses 52,595 52,667 (72) Income before income tax 124,438 1800 122,638 Income taxes (10,838) 7004 17843 Net income 135,277 (5,204) 140,481 Houkokusho, Y 2010, Nissan Company Limited: Financial Information as From March 2010. Contextual factors In any country, politics is an important factor in determining the progress likely to be made in various industries, specifically; the automobile industry’s performance has been to a large extent affected by the political climate in Japan. The Democratic Party which took over the leadership of the country on august 20, 2009 insisted on a more inclusive role especially within the international circles. The structure of japans administration is bureaucratic in nature, ministries and agencies guard their own jurisdiction. This bureaucracy has greatly affected the motor industry due to the slow pace of policy formulation. However, a strong economic policy between the ministry of economy trade and the industry has played a vital role in promoting and sustaining a competitive edge worldwide. The ministry has adopted a convoy system upon which large companies within the automobile industry are selected for preferential treatment. The relationship between policy makers and the industry has been strengthened; the new administration was elected due to public demand. The administration encourages more defined corporation between politicians and bureaucrats in managing the industry. Internationally, plans are under way to extend political influence on important issues affecting Japan economy, and this would far reaching influence on the automotive industry. The political classes have agitated for establishment of economic policies that would promote the economic prosperity of domestic firms and overall economic growth. In line with the government medium term goal, Nissan being an automobile company has put into consideration the introduction of fuel cell cars, the company is committed to increase the pace in development of vehicles that have minimal adverse effects on climate (Nag et al, 2007, 5). Globally, stiff competition and increased business opportunities have necessitated a change in business strategies within the Nissan Company, the establishment of production centers in developing countries has been vital in promoting efficiency. Over the years, the company has allocated sufficient resources in constructing oversees facilities and established mergers with other partners to strengthen its market presence. In general, the supply chain has experienced major changes, the company is increasing focused on areas such as basic plan, assembly and servicing. The company as an automobile industry has linkages to several crucial areas of the economy; it can be described as a major player in the economic growth of various countries. Evidently, within the past four decades Nissan has expanded cooperate activities allover the world, this implies that the company is able to operate production centers close to the targeted market. President Hiroshi Yoshiro postulated the importance of local production in success of the company in the hands of local community. However, the strategy adopted is greatly dependent on the host country. Regional and international pressures have also affected business in Japan. For example, the imposition of European tariffs have affected demand for Nissan products in the international markets Nevertheless, such emerging challenges have been tackled by introduction of high quality cars with affordable price. Penetration of markets within some of the Asian countries has been simplified by the demand for lighter vehicles manufactured by the company. The long-term relationship with suppliers and frequent exchange of professionals has been an important hallmark in the milestones achieved by the company. Legal factors have had great influence on the business firms in Japan and Nissan is not exceptional. The enactment of patent law by the Japanese government in 1959 has influenced business operations in the country. The act emphasizes on the need of strong prop=patent policies that would facilitate innovation of firms to regain international competitiveness. Innovation is very vital for economic development. Therefore, embracing innovation by firms helps break out the confining economic situation in Japan. Since the beginning of 1990s, numerous business firms in the Japanese economy have adopted innovative structures, systems and measures. Consequently, this has contributed to overall economic growth in the country. Better economic conditions in the country will boost business operations of Nissan Company and the overall automotive industry (Nag et al, 2007, 5). Conclusion Critically, the presence of international automakers implies that the company must adopt crucial strategies that will allow penetration of existing market; this can be done through cost differentiation or product differentiation. Potential markets such as Russia are estimated to increase by a huge percentage by the year 2014, such opportunities offered by international markets need to be factored within the strategic plan of Nissan. The company should take advantage of its alliance with Renault to explore possibilities of a new competitive edge as well as market leverage. The company should clearly address the risk of cross cultural conflict through well structured programs. Prospects are high within the European markets, however, the problem of product recall experienced in the recent past need to be dealt with. Based on the arguments and discussions advanced in this report, Nissan is a better choice for investment. The following recommendations are proposed to further enhance profitability of the company. The company should seize opportunities offered by emerging huge markets especially in the Eastern Europe. Nissan alliance should focus increasing its international presence through collective distribution network. Budget allocation on diesel technology need to be increased as a way of boldly facing competition in Europe. Nissan should strive to acquire international accreditation as a way of boosting clients confidence Reference Lists Hill, L, Cronk, T & Wickramasekera, R 2008, Global business today: An Asia-Pacific perspective, Chichester, UK: John Wiley & Sons. Houkokusho, Y 2010, Nissan Company Limited: financial information as From March 2010, viewed 3 October 2010, Monks, R & Minow, N 2008, Corporate governance, Chichester, UK: John Wiley & Sons. Motohashi, K 2003, “Japan’s patent system and business innovation: reassessing pro-patent Policies”, Japan Institute of Invention and Innovation. Nag, B, Banerjee, S & Chatterjee, R 2007, Changing features of the automobile industry in Asia: comparison of production, trade and market structure in selected countries, viewed 3 October 2010 Read More