Automibile Industry
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Executive Summary
The report analyses the strategy chosen by a Japanese Manufacturer Nissan to enter the European Market. After a thorough research it was found that Nissan decided to enter the United Kingdom by establishing a wholly owned subsidiary in Sunderland, in 1984. The subsidiary was called Nissan Motoring Manufacturing Ltd. and today it accounts for 60% of all the Nissan cars sold in Europe.
Nissan had a number of rational reasons to choose the UK for setting up a plant. These reasons and possible benefits are analysed by using the Porter’s Diamond. The most evident motives appeared to be easily accessible labour, the level of technology, high demand for vehicles, a big number of steel manufacturers and the opportunity of being closer to the customers, i.e. building up competitive advantage.
The report also examines the advantages and disadvantages of a wholly owned foreign subsidiary. The key advantages found were the complete access and control by the Nissan management over the subsidiary and the elimination of a need to share the innovative ideas, which is likely to happen in an alliance or in other entry modes. Finally, all the profits were to be retained in the parent company. However, there were a few drawbacks, such as an extremely high cost of building a plant from the scratch, together with a big amount of resources required to establish an efficient factory.
As a final point, the report evaluates the suitability of the chosen country and the entry mode. The results show that the benefits outweigh the losses, i.e. the company made a competent decision. Meaning, that the United Kingdom was able to offer plenty of gains in such fields as labour and technology. Whereas the entry mode adopted meant high set-up costs, however, big profits in a long-run.
Introduction
The report aims to analyse the chosen country and the entry mode adopted by Nissan- a Japanese car manufacturer. Firstly, the brief introduction of a foreign wholly owned subsidiary will be made. Then, the report will examine the opportunities offered to Nissan, applying the Porter’s Diamond. Thirdly, it will discuss the advantages and disadvantages of the mode of entry adopted. The analysis will by concluded with the evaluation of the suitability of entering the UK, together with an assessment of the appropriateness of the entry mode. Finally, the report will finish with a conclusion which will sum up the findings.
2. Analysis
2.1. The entry strategy
At the process of entering the UK, Nissan already had a small foothold in Europe. They had begun to export cars to Finland as early as in 1962, in addition to acquiring an equity interest in �Motor Iberica S.A’ in Spain (Wikipedia, 2006). However, export and delivery costs to Europe were high, so in order to reduce these expenses, they identified a need to set up a plant in Europe.
In April 1984 the Nissan Motor Manufacturing Ltd. (NMUK) was established in Sunderland, UK. Bluebirds were the first cars to be manufactured, making the plant the sole supplier of Bluebirds in the UK. Today the NMUK is the largest car manufacturer in the United Kingdom and the most productive in Europe. It accounts for 60% Nissan cars sold in Europe and constitutes for 20% of the whole UK production.
Back in the 1980’s Nissan Corporation had some vital motives for entering the European market. The car manufacturer was already exporting cars but to strengthen the market position it had to settle within Europe by setting up a plant which would be efficient and able to supply the countries in the old continent. By doing so, Nissan had an opportunity to reduce delivery costs, avoid export tariffs and be closer to the customer that would allow gaining a competitive advantage against other car manufacturers.
The strategy adopted by the Nissan Corporation to enter the European market was the wholly owned subsidiary. This is the entry mode whereby the whole operation is owned by a single parent company, meaning that it can be formed by starting a new company all together. This initially involves the company providing all required materials and equipment (Wild et al., 2006).
2.2. Opportunities offered by the UK
The UK has a contestable market within the car manufacturing industry and has many traits within the nation that made it an attractive prospect for Nissan to enter. Some of the opportunities that the UK has to offer can be presented using the Porter’s Diamond. This model helps to portray the competitive advantage the country has to offer (for more detailed explanation refer to Appendix 2).
2.2.1. The factor conditions
The unemployment in the UK in the late 1980’s, was as high as 11.2%. Particularly in the area of Sunderland with a high number of unemployed manufacturing-skilled workers, due to the recent closure of shipyards and coal mines on Durham coalfield (Wkipedia, 2006). This was major factor that draw the Nissan’s attention and offered an opportunity of easily accessible local labour.
Natural resource in Japan has known to be scarce and therefore expensive. Due to this they have been known to hold production in other areas, especially within Europe (Wild et al, 2006). The UK, rich with renewable resources, therefore, was a reasonable choice.
2.2.2. Demand conditions
One particular determinant of the success of an organisation is the demand for the product or service offered. The UK has a high demand for vehicles resulting in Nissan introducing new models and designs which helps them to maintain the competitive advantage. The UK charges more for their vehicles then any other European country (BBC News, 2000). Although there is this issue of high prices, buyers are keen to purchase new models. They are drawn via innovation. “Nissan in Sunderland makes 260,000 Primeras, Micras, and Almeras a year, and has been the most productive car plant in Europe for the last six years” (Nissan Corporate Website, 2006). At one point in 1998, Nissan was noted as the most productive car manufacturers in all of Europe and northern America producing 98 cars per worker per year. This high productivity rate reflects on the UK’s healthy car market along with their skilled workforce.
2.2.3. Related and supporting industries
This factor of the Porter’s