Cooperation Between the Automobile Company Honda and the Government of Japan - Essay Example

?Japan: Honda Introduction Multinational corporations (MNCs) are the primary economic movers in the world. They cover a vast area of the market even to the point of dwarfing small-scale enterprises. These MNCs come from various countries, with most of their countries of origin being developed nations. The profitability of these MNCs is often also based on the status of the countries where the MNCs are based. MNCs in countries with strong economies are often able to profit well from their own countries as well as from the foreign market. Japan, is considered one of these countries. It has become one of the most developed countries not just in Asia, but the world. One of the MNCs emerging out of this country is the automobile company Honda. Honda is considered one of the leaders in the automotive industry, earning profits in the billions, and expanding its market to thousands of outlets and manufacturing firms around the world. This paper shall analyse the relationship between Honda and Japan in terms of the socio-economic development within the country. Body Honda is a Japan-based public corporation which is primarily involved in the manufacturing of automobiles and motorcycles. Since the end of the 1950s, it has been considered the largest motorcycle manufacturer as well as the largest manufacturer of internal combustion engines in the world (Johnson, 2005). In 2008, it even surpassed Chrysler as the fourth largest automobile manufacturer in the US (Ohnsman, 2010). Worldwide, it ranks as the seventh largest automobile manufacturer, behind Toyota, General Motors, Volkswagen, Hyundai, Ford, and Nissan. It has made major strides in automobile manufacturing, as well as the manufacture of other products, including power generators and personal watercrafts. It has also been involved in robotics and artificial intelligence as well as aerospace engines (Falloon, 2005). Its research and development has continued to come up with innovative as well as timely technologies which have continue to serve the purposes of the corporation, thereby earning millions of dollars for its profit-sharers (Falloon, 2005). Japan is considered to be the third largest economy in the world following the US, and the People’s Republic of China (Lah, 2011). In 2011, the International Monetary Fund declared that the per capita GDP of the country was at $34,362, the 24th highest GDP in the world. It is also considered the second largest automobile manufacturing country in the world; it also has the largest electronic goods industry as well as one of the most innovative countries in terms of patent filings (World Intellectual Property Organization, 2011). With much competition from other countries, Japan has shifted its focus on high technology and highly specific goods, including optical goods and hybrid cars. Japan is also known for its credit issuances with its trade surplus and investment surpluses (Chandler, 2011). It also has 13.7% of global private financial assets, registering at about $14.6 trillion (Hindman, 2010). About 68 companies in the Fortune 500 are found in Japan, and the Tokyo economy alone represents the largest metropolitan economy worldwide. Since 1960, Japan has enjoyed massive economic growth and development. Even in the aftermath of significant destruction during the Second World War, Japan was able to register significant gains in its economy and development. Like other countries in the world, it too has experienced periods of downturns in its economy. In 2010, it was deposed by China as the second largest economy in the world (Lah, 2011). In the early to late 1980s, the increase of their stock and real estate prices, their economy experienced the Japanese asset price bubble, and this period ended when the Tokyo Stock Exchange during the early 1990s crashed (Lah, 2011). Its economic growth rate suffered significantly during the 1990s. From 2001 to 2010 however, it was showing signs of significant recovery as it managed to perform better that Europe and the US (The Economist, 2011). Japan is considered a mountainous island country which does not have enough natural resources to support the population (Country Data, 1994). It has low mineral yield and many of its forest resources have not been used extensively. Due to political complications, their forest resources were not used for economic activities and only a small percentage of the timber needs came from their forests (Country Data, 1994). Their agriculture and fishing industry however has been considered strong and well developed. Their economy also ventured into manufacturing and processing of raw materials for imports (Country Data, 1994). This necessitated the establishment of economic tools which were meant to provide energy, transport, communications, and technological expertise. Their mineral needs have also been supported by foreign imports, due to its inadequate mineral deposits (Country Data, 1994). Considering its mineral demands, its foreign mineral imports registered at high rates. The development of Honda as an MNC is significantly related to Japan’s socio-economic development. In the aftermath of the Second World War, Japan suffered a serious economic downturn (Krugman, 1998). It was also suffering from major expenditures in relation to the rehabilitation and recovery of its infrastructures damaged during the Second World War. Japan was also finding it difficult to establish foreign trade with the refusal of countries to open up relations with them (Krugman, 1998). Japan was also suffering from steep oil prices which made it difficult for people to regain full economic recovery (Krugman, 1998). At this point, their automotive industry responded well to the needs of Japan. Soichiro Honda, a racer and manufacturer was one of the people who envisioned the manufacturing of more affordable vehicles. He started to produce small motorcycles, cheaper alternative forms of transport for the people of Japan who were finding it difficult to keep up with rising oil prices and limited transport systems (Smoke Riders Association, n.d). His first motorcycle was therefore built out of necessity. In order to make the motorcycles cheap and mass-produced, he also used cheaper alternatives to the resources (like turpentine) he needed to build the motorcycles. Honda’s first motorcycles proved to be successful in the market because of the great need of the people (Smoke Riders Association, n.d). Honda then decided to build and design his own motors. More developments in the building of motorcycles soon followed with Honda continuing to build better vehicles motorcycles. Automobile manufacturers during the 1950s however had a hard time gaining financial assistance from the banks, especially with the chairman of the Bank of Japan declaring that Japan did not need to invest into the automobile industry (Honda World, 2012). This did not sit well with the automobile manufacturers, however, they were not deterred; instead their desire to rebuild the automobile industry was fuelled (Honda World, 2012). This was more or less the same case for Honda, which saw the need to produce mass-based transport for his fellow Japanese. The Ministry of International Trade and Industry was also more in favour of protecting domestic automobile manufacturers and this ensured that Japan’s automobile industry would shut out foreign manufacturers (Honda World, 2012). In effect, this allowed Honda as well as other automobile manufacturers in Japan to flourish and develop strong markets. Japan’s attempts to improve the industry did however prompt them to make allowances for foreign collaborations in order to ensure improved technologies in the industry. In the end, they felt that foreign collaboration would benefit the vehicle industry and make them more competitive in the export market (Honda World, 2012). With significant developments in the automobile industry, Japan saw the need to regulate and establish legal policies in the management of its manufacturing industry. In 1952, it passed the Industry Rationalization Promotion Law. This law required for the rationalization of the automobile, steel, machine tool, electronic communications equipment, and related industries (Japan Automobile Manufacturers Association JAMA, n.d). Tax advantages were grated to these industries and low government loans were also provided to them. As a result, automobile companies, including Honda were able to create cars competitively, making improvements in quality as well as marketability (JAMA, n.d). More rationalization demands for Japan’s automobile industry were also required under Japan Industrial Standards passed in 1951. With these legal processed made by the Japanese government, cost reduction was achieved and the quality of products was also improved (JAMA, n.d). Honda, like other automotive companies in Japan was able to market its products at a lower price and at high quality. In the years that followed as Japan was in its economic and industrial rebuilding, war regulations were also lowered and restrictions on car production were eventually lifted. The export of automobiles was also opened by the government, and Honda became one of the first to take advantage of the foreign market (JAMA, n.d). They also set-up their exchange rate at $1=360 yen in 1949 and soon after they were ready to transact in the international scene. Motorcycles were Honda’s first foreign trade (JAMA, n.d). When the MITI launched the establishment of a promotional catalogue in English, Honda was able to participate in establishing information drive for its automobile business. In the early 1950s, Honda suffered economic downturns mostly because it was still sensitive to the effects of the war. This downturn was not helped by their expansion to Tokyo. These years marked a time when the demand for motorcycles decreased and fewer sales were being made with their capital significantly shrinking (Honda World, 2012). Honda was in trouble. Then, the Korean War broke out and the US turned to Japan to supply its special procurement needs in vehicles. Honda, as well as the other automobile corporations, benefitted from the increased demands of the US (Honda World, 2012). With strong revenues for this industry, Japan suffered a major recovery from its economic slump. Its profits were paid in dollars by the US government and these indicated strong benefits for the country in general (Honda World, 2012). Eventually, the domestic market of Japan would also recover and Honda also considered the major changes and improvements it could implement to its company. It was a period of time marked by major purchases for its expansion as well as for its manufacturing facilities. With improvements in their economy, the demand for cars also increased. The demands were for standard size cars, smaller-sized cars, three wheelers, and two-wheelers (JAMA, n.d). With these demands, Japan held its first automobile exhibition in Tokyo. Honda was one of the main features in this show and like its fellow automobile companies, it gained exposure and much needed international and domestic attention through this exhibition (JAMA, n.d). International attention also boosted Honda’s international sales. But this was not the only benefit gained from foreign attention. As Japan opened its doors to international collaboration, it also considered how it would comply with international standards in the manufacturing of cars. Soon after, most manufacturing corporations were complying with the international standards. Honda was however still struggling in its old-fashioned marketing culture (Global Radio, 2012). Honda needed to come up with a product which would appeal to the public and soon after, new designs were built and new concepts in marketing were used. Honda was also challenged to exceed international standards; as a result, it sought assistance from the government for the purchase of new machines. Imports of European and American motorcycles were also scaled down to a smaller scale (Global Radio, 2012). But these bikes also were superior in quality to the Japanese bikes; and this pressured Honda to close these quality gaps. It then started also to use tools from the Europe and US in order to comply with international standards (Kim and Michell, 1999). Moreover, a new plant was built in order to show off its ability to keep up with international demands and standards. Soon after, Honda gained much success in the automobile industry. In furthering its attempts to participate in the international market, Honda employees were sent to international motor vehicle races (JAMA, n.d). Honda even built its special engine in order to compete in the races. Japan was indeed making major strides in the international scene and its automobile corporations were some of the main instigators of this achievement. Some of the sales for its models were however not as profitable as they expected, and Honda had to consider other means to recover from their slump (Lieberman and Dhawan, 2005). Its international tours however became persistent and from learning new tips from other manufacturers, Honda was able to consider various adjustments which it needed to implement. Japan was keen in encouraging foreign collaboration in order to improve its corporate and economic performance across the board (Lieberman and Dhawan, 2005). Honda also took foreign collaboration seriously as Shiochiro Honda travelled to Europe to gain ideas for its new product (JAMA, n.d). His new designs proved to be instant successes because they were based on ease of use, durability, as well as economy (JAMA, n.d). The corporate culture of any MNC is often affected by the political and the socio-economic culture of the country as a whole. This is the same case for Honda. Japan has established itself as a technological innovator, capitalizing in electronic developments as well as industrial innovations (Mair, 1999). For which reason, Japan’s labels can be seen in many electronic and industrial products, from household appliances, machines, heavy equipment, and automobiles. Japan’s corporate culture has also been founded on making their products more marketable to the masses, in other words, more affordable to the larger population (Mair, 1999). This culture and trends in Japan have been seen in Honda. Honda, as illustrated previously, has managed to be an innovator in the automobile industry. From the very beginning, it has been active in the establishment of improvements in car and automobile designs as well as machinery (Mair, 1999). As a result, it has reached its current peaks, being one of the largest and most extensive automobile corporations in the world. Japan has also always been keen on entering the foreign international market (Kim and Michell, 1999). Throughout the years, its ability to market more affordable products has given it a competitive edge with its Western counterparts. Honda has also managed to expand its goals in providing cheaper automobiles to the international market. As a result, its vehicles are being marketed in almost any corner of the globe (Mair, 1999). Moreover, it has expanded its manufacturing operations beyond its shores. They have manufacturing plants in the US, the UK, Australia, and service centres in most countries in the world. Japan’s investments have expanded to other countries through its various technological and industrial expansions (Mair, 1999). This expansion has been mirrored in Honda with investments in other countries for their automobile industry. Its main investments have always been on automobiles, and its expansions in other countries have been seen in Ohio and Alabama (USA), Alliston in Canada, Swindon in the UK, and Ayuthhaya in Thailand (Honda Motors, 2008). It has marketed its brands under Honda for the masses and Acura for their luxury cars in North America and China (Honda Motors, 2008). Although the US is considered its biggest market, the growth of the Brazil, Russia, India, and China or the BRIC countries prompted Japan to shift its investment and markets to the developing countries. However, Honda has still managed to gain an advantage in its US market because of its smaller and low maintenance automobile designs which have also been more fuel efficient (Honda Motors, 2008). With growing environmental concerns as well as increasing oil prices, hybrid cars have become highly relevant, and Honda has concentrated its investments in these types of vehicles, through its Civic and Accord models. With these cars, Honda has actually managed to gain a strong foothold in hybrid cars against American automobile MNCs. Moreover, with the strong technological prowess of Japan integrated into Honda’s corporate culture, it has managed to gain a significant international market for its products, one which is built on a good reputation for affordability, accessibility, as well as relevance. Honda’s technological investments in other countries have also been significant with its motorcycles. Japan’s technological innovations have especially been exemplified in Honda’s motorcycles and variations of the product. It has been a major innovator of all-terrain vehicles as well as personal watercrafts (Honda Motors, 2008). It has also tapped into the sports motorcycle market through trial and moto-cross racing; it has also dipped into the market of business and commuter motorcycles. It has managed to open up investments in other countries, like the US, Mexico, Italy, Spain, Brazil, Thailand, Vietnam, India, and the Philippines in an attempt to expand and accommodate its motorcycle trade (Honda Motors, 2008). Japan has always been responsive to the changes and the demands of the market. Honda, has been equally as responsive to these changes. Improvements in its motorcycle business saw a major demand and expansion in the emerging markets; moreover, Honda wasted no time in establishing its market and stronghold in these markets, just as its revenues were stagnating in Europe and in North America (Honda Motors, 2008). In Asia, where motorcycles were convenient forms of transport, Honda was able to profit well. In support of Japan’s relevance in the market of emerging and developing countries, Honda marketed its cheap motorcycles (Furlan, 2002). Just as Honda developed its strong reputation in the motorcycle industry in emerging economies, this reputation also effectively paved the way for its automobiles (Honda Motors, 2009). In effect, Japan through its MNCs like Honda was able to create a strong market in developed countries; and just when this market was starting to lose its profitability, it demonstrated resilience in shifting its market to developing and emerging economies. Honda has also developed a strong market in power products and other businesses, such as portable generators, general-purpose engines, grass cutters, outboard engines, water pumps, as well as power tillers (Honda Motors, 2009). Lawn tractors, power sprayers, power carriers, and lawn mowers also comprise Honda’s share of the market. Once again, it focused its market for these products in emerging economies. As it was able to gain a strong market in these countries, it was able to gain a more long-term market for its products (Honda Motors, 2009). Japan has also been a country significantly involved in financial services to customers as well as dealers (Furlan, 2002). The focus of Japan in most of its market dealings has revolved around the customer and what the customers can manage based on their financial circumstances (Kenney and Florida, 1992). Honda has managed to create these financial services to its customers. With its dealings with commercial banks, leasing companies, and finance companies, it has managed to create options for customers (Honda, 2009). These financial services have mostly been concentrated in developed nations with high payment capabilities. In effect, Honda has been able to secure a market with lucrative interest payouts, and also to maintain a large consumer base for its products. Conclusion The development of Honda as an MNC has more or less followed the political and the socio-economic development of Japan. Honda gained much strength as an automobile MNC after the Second World War at a time when Japan was also economically, structurally, and politically recovering from the ravages of the war and two major atomic bombs. Japan always saw the value of industrialization and wanted to gain major progress in various technological innovations. At a time when demands for more affordable transport systems were gaining ground in Japan, Honda’s innovations in motorcycles started. This opened up the company to a lucrative market for its products. During the Korean War, the US ordered various vehicles for its battle with Korea, and Japan’s automobile industry benefitted significantly from these orders. In the years which followed, Japan gained a strong reputation in electronics, automobiles, power tools, as well as other gadgets. Honda was one of these corporations which slowly started to gain an international market. Japan started to gain a strong reputation internationally for its various investments, and Honda was very much in the middle of these favourable developments. 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