Japan's Automakers Face Endaka - Term Paper

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Additionally, relocating the production facilities helped avoid any protectionist practices that the U.S. government might have applied in the case of Japanese car producers and exporters.

On the other hand, relocation was doubled by strong austerity measures back home. This included improving the companies' productivity and efficiency and cutting the cost of production, but also market diversification. The latter implied the fact that the Japanese carmakers attacked market sectors that had been out of reach before: higher margin segments and the luxury car segment. Prices gradually rose to counterbalance the appreciating yen.

The 1994-1995 enkada proved an even harder to deal with problem, as the rates reached 80 yen for a dollar and, additionally, the competitive environment was much tougher than in the 1980s, with new companies in the market, like those from South Korea (Daewoo), with highly competitive price advantage.

In this case, there are several solutions that can be adopted. In my opinion, relocation to the U.S. is not enough any more. As we have seen from the case study as well, even companies with large cash reserves and the capacity to commit to cost reductions would not have been able to sustain the second endaka on these measures alone.

Relocation to Asia was the most important answer that the Japanese car manufacturers gave to the new currency challenges. This workforce market offered qualified people at much lower salaries than otherwise practiced in Japan. Needles to say that administrative and maintenance costs were also much lower. On the other hand, such a solution came in strong dissonance with Japan's perception on loyalty and lifetime employment, while the pressure from the internal market was extremely high. The price increase, somewhat successfully applied during the first endaka, was also an applicable solution, but only to certain market segments, more notably those where the demand was inelastic as to price.

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3. Companies that rely quite significantly on exports as part of their profit have to take into account any appreciation of their national currency, because in this case, their exports will become cheaper and their profit margins lower due to comparatively higher costs of production. The response given by t he Japanese automotive producers in this case was eloquent as to what a company in this situation should do.

In my opinion, the key words are increased efficiency and productivity. Indeed, cutting the costs of production as the first response in the case of a currency appreciation will only be effective when workers' productivity increases as well. On the other hand, lowering values for fixed administrative costs is a necessity (the example with the free Thursdays and Fridays in exchange of Saturdays and Sundays in order to save money on electrical current is quite eloquent).

If the currency appreciation is strong enough to decrease the profit margins to subsistence levels, relocation may be a proper answer. The example of the Japanese car manufacturers in the 1990s is not singular. The software and computers industry is a good example as well: Taiwan, Malaysia or Singapore were keen to take over as producing countries, with lower costs.

Among other solutions that were successfully implemented by the Japanese companies was the speculation of market segments that allowed for higher profit margins, such as the luxury segment......

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