Discuss about the International Business for Global Automotive Industry.
Mazda Motor Corporation is a Japanese multinational automaker based in Fuchu, Japan. The core belief of the company is reflected in its taglines “Zoom- Zoom” and “Driving Matters” as it continued to compete in the global automotive industry. Mazda Motor Corporation entered into partnership by devoting best resources and personnel. Being a small scale company, they are enabled to clearly focus on the identification of their brand. This essay reviews, critiques and summarizes the case study on Mazda Motor Corporation which provides how it survived by way of partnering with giants.
The review of the case study provided that the company aimed at becoming the first choice of the customer. For achieving this aim, Mazda Motor Corporation entered into partnership with Ford Motor Company in the year 1979 by helping Ford in lean manufacturing and small- car engineering, in exchange for marketing know- how and finance (Rothacher, 2015). In the year 2010, the termination of this 30 year alliance took place as a result of the global financial crisis. In the year 2015, a long- term partnership was entered into by Mazda with Toyota Motor Corporation for sharing technologies and coping with the cost pressures.
The problem with Mazda Motor Corporation was that it was a small company which experienced difficulty in competing with the competitors in the automotive industry. After the global financial crises, it suffered from net profit loses for four consecutive years while operating independently. However, it was still not making adequate investment in the R&D sector for introducing the trending technology in the vehicles.
The history of the company highlights that after slowing down of the demand for cork, the artificial- cork manufacturing company shifted to vehicle production. The shift also resulted in renaming of the company from Toyo Cork Kogyo Co. Ltd. to Mazda Motor Corporation in the year 1984. The first two- door passenger car was launched by the company, Mazda R360 in 1960 followed by a four- door passenger car, Mazda Carol, in 1962. In 1967 and 1970, it started exporting vehicles to Europe and United States which made it a significant competitor of the rival who had already established global presence. However, the company experienced heavy financial turmoil in 1970s due to swaying of customers from vehicles having inefficient rotary engines (Cranswick, 2016). Ford showed trust in the potential of Mazda and bailed out its struggles by acquiring 7% shares of Mazda in 1979 (Niminet, 2014_. This marked the beginning of the financial relationship that lasted for 30 years (Harvard Business Review, 2017).
Both the company lacked financial resources but converted this situation in their favor by creative an incentive to share technology. Mazda used the brand name of Ford for selling the trucks internationally in 1976. The cumulative production of Mazda reached 10 million units by 1979 with the constant efforts of both the companies for generating synergies. Platforms and parts were shared by the companies for reducing costs and improving efficiency. Mazda provided Ford with operational efficiencies and small parts for boosting production (Guo, Jiang & Yang, 2014). The operational and financial benefits arising out of the partnership led to the increased stake of Ford in Mazda by 20% throughout 1980s. With the further worsening of the financial struggles in Mazda, Ford increased its share to 33.4% in the year 1996 (Cavazos, Rutherford & Patterson, 2016). This was the time when new CEO, Henry Wallace, was appointed in Mazda who made every effort for the implementation of innovation program for fostering the development of new products and establishing market leadership which resulted in healthy profits and sales volume throughout 1990s. By 2000, the sales volume of Mazda reached 2,55,526 units in North America, 3,07,000 units in Japan and 2,10,677 units in Europe (Nawrot, 2014). However, the automotive industry was under the pressure of looming economic crisis which in turn threatened the success of Mazda. According to the review, the partnership with Ford was correct decision by Mazda as during the term of partnership, the sales were high and Mazda did not face many difficulties in its operations.
Therefore, the major stakeholder identified in the case study is the customers. The customer is the most important stakeholder on which the sales of cars depend. The fall in buying capacity of the customers resulted in the global financial crisis. It resulted in the dissolution of Ford- Mazda partnership after 30 years in 2008. All across the globe, the crises led to a significant fall in the automobile sales due to increasing prices for raw materials and automotive fuels. The dissolution of partnership was not an instant decision but took place over a period of time. The fall in demand during recession led to reduction in size and selling of inefficient assets by the automotive companies. In 2008, Ford also sold 20% of its stake in Mazda while Mazda bought back its 6.8% shares from Ford. Ford was left with only 3% ownership in Mazda after it slowly divested its stake (Kobayashi, Jin & Schroeder, 2015).
After the dissolution of strategic partnership between Ford and Mazda, the survival of Mazda as an independent automotive manufacturer became doubtful. Since the survival of Mazda was already doubtful without Ford, Mazda should have not ended partnership with Ford. Ford had the capability of reviving Mazda from the financial crisis easily but such dissolution created hurdles in the growth of Mazda. This was true as the Mazda’s business activity was negatively affected due to declined demand in the automotive industry as a consequence of global financial crisis. There was a significant decline in sales of Mazda in North America, Japan, and Europe in 2010- 11.since Mazda was engaged in the exportation of automotive products after its assembling in Japan, it was very much sensitive to rates of foreign exchange. In 2010- 11, the exchange rate of U.S. dollar yen dropped to US$1 = ¥86 in comparison to US$1 = ¥114 in 2007- 08 (BLE, 2016). In the same period of time, the slumping sales and poor economic conditions also resulted in decline in the operating profits of Mazda. Mazda suffered from the consecutive net profit losses from FY 2008- 09 to 2011- 12. Mazda had to search for an option for the purpose of reviving its business from the lack of financial resources accumulated losses.
For the purpose of overcoming the struggles as an independent manufacturer, ultimately Mazda decided to alter its identity as a rotary engine manufacturer as it had the advantage of having reduced vibration and higher power- to weight ratio. SKYACTIV technology was introduced by Mazda in 2010, with the help of which the vehicles were equipped with outstanding crash safety, high fuel efficiency and balanced precision handling. Since the technology was already successful, Mazda 6 and CX- 5 gained traction and caused steady rise in the global sales of Mazda in 2012. The stock price of Mazda also achieved new heights which appeared to be the result of SKYACTIV technology for bringing resurgence to the independent business. This revealed that Mazda had capability of operating as an independent manufacturer but relied on Ford for such a long time. But in case if it had took required steps for staying competitive in the market, it would have achieved new heights in the global automotive industry. In its aim to become the continuously chosen brand by the customers, it lagged behind the larger firms that made the active implementation of consolidation strategies for lowering unit production costs, strengthening customer responsiveness and innovation and increasing shares in the foreign market (Yamamoto & Nogami, 2016).
After its revival through SKYACTIV technology, it faced competition from foreign importers and domestic automotive manufacturers. In 2013, automotive industry became Japan’s core industry with a number of small and large automotive companies headquartered and founded in Japan. Through the adoption of unique global strategies, the global Japanese giants such as Suzuki, Toyota, Honda, Nissan and Daihatsu were capable of recording higher sales than Mazda. In order to be competitive, Mazda had to shift the focus to international markets for survival. However, the global automotive industry presented great risks and competition for automotive manufacturers (Kuriyama, 2017).
The success of a company in the automobile market necessitated its presence in the global market. Automakers faced a number of challenges such as cost pressures, complexity, digital demands, diverging markets and a shifting industry landscape. The competition increased severely as in 2015, there were around 1,500 companies manufacturing vehicles at the global scale. They were required to make adjustments in the business strategies along with shifting resources and investments and developing new skills for constantly achieving profits and growth in the automotive industry across the globe. Mazda should have constantly analyzed the trends of the market to understand the strategies of the competitors for achieving success but it not made additional efforts and continued on its existing strategies which made it suffer from difficulties (Montoya & Cuervo-Cazurra, 2014).
After the financial crisis in 2008, it became difficult for the small companies to survive independently as the global automotive industry witnessed a complete transformation. This was the time when the major companies such as Fiat and Volkswagen made the acquisition of smaller companies for increasing their manufacturing capabilities and diversifying their product lineups. For securing brand value and technology, struggling European brands such as Jaguar Land Rover and Volvo were purchased by Tata Motors and Geely. After partnership with Ford, Mazda avoided mergers and acquisitions (M&A) and opted to stay in its own control for decision making and operations. This was the time when Mazda also had opportunity to enter into M&A with a giant for the easy survival but no action was taken in this regard (Wynn-Williams, 2009).
For surviving in the increasingly competitive landscape, auto companies keep their focus on research and development (R&D) for achieving the fist- mover status. Volkswagen, Toyota, General Motors and Ford spent huge sums of money on R&D for the development of new platforms which can be utilized between different automotive brands and models as it can allow saving of time and money (Morschett, Klein & Zentes, 2015). By 2017, platform called MQB was utilized in around 4 million cars from 40 different models under Volkswagen. Same platform was shared between Audi’s A3 and Volkswagen’s Golf despite of the difference in brand and exteriors. Taking into consideration billions of dollars spent by competitors on R&D, Mazda also specified its intentions of investing ¥100.0 billion in FY 2014- 15 which was subsequently increased from ¥ 99.4 billion during FY 2013- 14 (Mazda, 2018). The R&D investment value committed by it was still lower than its rivals due to which it suffered from the risk of falling further behind. This was a wrong decision by Mazda of not making adequate investment in R&D as it was operating independently. Not being able to offer competitive technology in the market would have resulted in heavy losses which could even lead to closure of the company (Andrevski, Brass & Ferrier, 2016).
With the passage of time, new energy vehicles (NEVs) such as electric, hybrid and fuel- battery- equipped cars gained popularity in the developed markets. In 2015, the figures revealed that hybrid cars sales constituted 4 % of the total vehicle sales in United States. This encouraged other countries for pushing for the sales of NEVs. For making NEVs attractive, tax exemption programs were introduced in China and other European countries. By 2020, the total number of NEVs is expected to reach 20 million (Jacobs, 2015). The rapid expansion of NEV market necessitated the emerging companies such as BYD and Tesla for release products having capability to compete in the NEV market. Mazda still lagged behind the competitors in the adoption of NEV technology and continued to stick to its existing technology. It further provided that petroleum resources will remain the main energy for global automobile market in 2020. It will only adopt an approach with the help of which it will be able to reduce carbon dioxide emissions in the environment by vehicles. As a consequence, NEV technology was acquired by Mazda from Toyota and made the use of Toyota’s hybrid drivetrain technology for Mazda3 Sedan (Suntrayuth, 2015). In case such decision was not taken on time, this would have brought serious repercussions for Mazda in the form of winding up of company as it had to maintain competency in the market in some way or the other. Not entering into partnership at this time would have resulted in lagging behind of the business which might be irrecoverable.
For sharing knowledge and developing competitive advantage, strategic alliances are formed by many automotive companies as an alternative to M&A. BMW and Toyota, Honda and GM, BYD and Daimler AG are the examples of strategic alliances entered into by companies. Mazda had conservative perspective on alliances since Ford partnership due to the fact that termination of such alliances or unintended changes will result in adverse effect on financial position and business results of the group. Mazda relied on Structural Reform Plan and SKYACTIV technology for competing in the global automotive industry. The Structural Reform Plan provided some initiatives for the future of the company: increasing business innovation through SKYACTIV technology, accelerating cost improvement through Monotsukuri Innovation, reinforcing business in the emerging markets and establishing global production footprint and promoting global alliances. The plan became a success and raised the sales volume and operating income of Mazda. The growth was believed to be a result of strong performance with the introduction of SKYACTIV technology and economic environment of automotive industry.
Economies of scale were still sacrificed after the introduction of Structured Reform Plan which led to an increase in the domestic operational costs. These concerns were addressed by Mazda by way of announcing long- term strategic partnership with Toyota (Burton, 2015). In this partnership, there was an agreement between both the companies for collaborating on future products and sharing technological developments for staying ahead in the competitive environment. Both the companies took the advantage from this partnership as Toyota gained knowledge of SKYACTIV diesel and petrol expertise of Mazda while Mazda was in hope to take advantage from hydrogen fuel cell and hybrid technology of Toyota (Yamamoto & Nogami, 2016). In other words, both the alternative solutions were adopted by Mazda firstly by operating as an independent manufacturer and secondly by entering into partnership with Toyota.
The global financial crisis resulted in rapid changes in the industrial trends. The business strategies of the competitors had been altered while Mazda still maintained its pace. The achievement of sustainable growth is very important for Mazda along with the establishment of strong financial base for effectively handling foreign exchange fluctuations (Weiss, 2014). Other automotive manufacturers maintained distances with Mazda by constantly focusing on R&D investment, strategic alliances and increasing focus on economies of scale. However, Mazda made revisions in the business strategies and goals in the year 2017.
It is recommended that Mazda should take all the possible steps for grabbing the opportunities offered by the market trends. Saving some amounts from investing in R&D may result in greater irrecoverable losses. It should introduce competitive technology in the market and should aim to make constant innovations. Moreover, it should make efforts for taking partnership with Toyota to another level which in turn will lead to greater amount of profits for both the companies.
Managerial implications provide that the ultimate goal of Mazda i.e. to become a continually chosen choice of the customers will be met with the help of partnership with Toyota. Now Mazda is able to offer competitive technology to its customers due to constant support from Toyota. The performance has significantly improved in the market and is expected to meet the standard performance in future. Mazda is further required to switch to pro-active approach for staying competitive in market.
Conclusion
Therefore, it can be concluded that Mazda is applying the lessons learned from its partnership with Ford for becoming successful in its partnership with Toyota. It seems that establishing partnership with Toyota is the correct growth strategy for Mazda as it is a small company and suffers from lack of investment resources. The review of the case study assists in summarizing that the key goal of Mazda Motor Corporation is to become a continually chosen brand by the customers. For achieving this aim, Mazda enters into partnership with the giants in the automotive industry such as Ford and Toyota so that it can obtain the benefit of latest technology in the market and is therefore not required to invest heavy amounts in R&D. At the time when Mazda operated independently, it suffered from a number of adverse effects. Competitors invested huge amounts in R&D, entered into M&A and introduction of new technologies for staying competitive in the market. However, Mazda is still in the hope to survive just by way of entering into partnership with the giant Toyota. Both the solution were of optimum significance for Mazda as operating as an independent manufacturer assisted Mazda in analyzing its competencies and entering into partnership will now act as a step for attaining success.
References
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