The Manufacturers of Automobile in Japan

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The Automotive Business in Japan

The automotive business in Japan is one of the biggest and most noticeable enterprises around the world. It has been in the main three list of the nations that make most vehicles since the 1960s. The business has expanded quickly over the years and around the 1980, the vehicle producers got trained for both local and global export. Right now, Japan has created just about 13 million vehicles and even surpassed the U.S., which was the main creation country. Japan has had the option to hold this top situation with a yearly creation of about 9.9 million vehicles in 2012(Miyoshi and Nakata, 2014). Some of the leading automotive manufacturers that produce cars, construction vehicles, motorcycles and engines include Toyota, Nissan, Suzuki, Mazda, Subaru, Isuzu and Honda amongst others.

The Move towards FDI and MNE's

The exports that the automotive companies were making increased by nearly two hundred fold in the sixties as compared to the previous decades. The total production was at 17% of the whole world(Kenney and Florida, 2003, p.65). Besides, the domestic demand for automobiles was also increasing, and the companies felt that there was a need to expand their production into foreign markets at around the 1970's. The external market had also strengthened its demand for vehicles because of the 1973 Arab Oil Embargo and a decline in the exchange rates between the major currencies. The exports had risen from 100,000 to 1827000 between 1965 and 1975. The leading companies were the Honda and Mitsubishi, and by the end of 1980, nearly all the automotive industries in Japan had gained a significant market share in the US and other global markets.

The Japanese cars popularity and challenges

The Japanese cars were also popular in Britain since the 1970's especially the Nissan Datsun cars. The British loved the cars because of their reliability and low running costs(Mondt, 2000, p.89). However, the cars were faced with a major challenge of frequent rusting and the industry invested heavily in research and development. The companies also began to compete against each other in foreign markets model for example. The competition challenged many companies to quit exportation and venture into Foreign Direct Investment (FDI). The automobile industry had entered a stage of hyper-design and hyper-equipment where all businesses were now competing to produce the most competitive vehicles in the most efficient manner. Japan became the leading car producers even in foreign countries by 2000. The companies were known for producing affordable, reliable, and modern cars even in overseas markets.

Multinational Companies

Most of the automotive industries in Japan no longer export their products to other countries. Instead, they produce them in the countries where they are meant to be sold. The companies decided to become Multinational Companies for some reasons. The movement to multinationals has taken place gradually over the years. To begin with, there was a significant concern for the automobile industries on the strength of the Yen. The Yen hit a record low of 75.31 in 2011, and that was a fall in the past five years(Cheung, 2003). When the Yen is high, the exports of the Japanese automobiles become less competitive, and this affects the profits that the manufacturers get from their cars. Every yen that the dollar loses value contributes to high losses for each company. For instance, the Toyota Motor lost about 30 billion yen in its earnings in 2011 because of exporting other than producing in the countries where they ought to sell their cars(Magee, 2007, p.90).

Multinational Enterprises and Disasters

Another reason that made the automobile companies invest in multinationals is the complexity and increased costs of the supply chain in many countries. Japan had been facing numerous disasters, which made the auto industry vulnerable to its competitors especially those from Germany. The country experienced a great earthquake and tsunami, a torrential flooding and even the nuclear disaster. All these disasters disrupted the supply chains of the Japanese car companies and set back their production schedules by months. The costs of rising above the decline were also expensive for the companies. To hedge against these disasters the automobile industries became multinationals. Toyota Company led the move when they invested $565million in the U.S and manufacturing facilities in Canada. Other companies followed the trend, and now nearly all the Japanese automotive are multinational enterprises.

Success as MNE's

The automobile industry has achieved as multinational corporations in foreign markets because of an excellent basis of leadership(Jacobs, 2016, p.56). The interest groups in Japan are well organized with multiple industry associations, professional societies, trade groups, guilds, and even clubs. All the groups deliberate their ideas with a focus on the national interest of the industry, and there is no chance of articulating their concerns. The unions have therefore been able to forfeit real political influence and public acceptance and therefore their businesses have been led the automobile industry for more than 100 years in a row. The same attitude in the unions and various groups is seen in the human resource managers and others. They take the same organizational behavior in their companies abroad. They can define their purpose and follow it up in foreign countries, and they end up becoming market leaders.

Development and Research

There are many differences between cars from other parts of the world and Japanese vehicles. The automobile companies from Japan have realized that there is a need to design products for America and they engage continually in research and development(Shibata, 2016, p.45). Research and development focus on tracking consumer trends and developing products that satisfy American preferences and needs. The companies have multiple centers where they conduct their research. One of the leading companies is the Hino Motors, Honda Company, Isuzu Company and many others.

Capital and Labor Incentive

The automobile industry is capital and labor incentive. However, the amount of capital required is higher as compared to that of labor. The production requires high-value investments in capital assets. The companies from Japan often work as groups, which are made by many investors. When the investors pull their resources together, they can fund the high investment needs to acquire high returns. The government also supports automobile companies since the manufacturing sector is a major contributor to their economy.

Partnerships and Employment Breakdown

The Japanese auto industry has an excellent partnering model across the world. The partnerships with suppliers aim at reducing the number of companies they engage in business with entering into long-term contracts with the few suppliers they choose to work with and get top tier supporters to produce subsystems instead of components for parts of their automobiles. The subsystems aim to reduce costs and improve quality with a model for delivering just in time.

Japanese automobiles aim at an employment breakdown where they employ as few people as possible. They aim at integrating the different parts of the companies to ease operations and productions. Vehicles are also evolving by the day, and the industry uses parts from various suppliers to incorporate into every vehicle that goes to their assembly line. The automobile industry has operations and corporate alliances in every country where they have a market. The Japanese car industry has consistently made up the list of the top 100 global suppliers across the world. The kind of partnerships that the industry has shows a positive outlook with a chance to make more contracts with more foreign suppliers across the globe.

Upstream Distribution Network and OLI Framework

The automobile industry from Japan focuses on developing an upstream distribution network. The focus is to develop products that meet the needs of customers by developing designs and customer specific cars. The companies began by conducting feasibility tests to ensure that they get the best distributors to get into long-term partnerships with them. The automotive industries are also keen to make sure that they get customer feedback especially on new designs in the market. The automotive companies also make sure that they maintain proper customer relationships with their clients at their point of sale and distribution.

Apparently, the car industry has adopted the OLI framework where they choose foreign direct investment when entering overseas markets as opposed to other methods such as licensing. There is an ownership advantage where the automotive companies control most of the assets that are owned by the corporation. The automotive industries also have a location advantage, which gives them a chance to generate significant profits. The companies ensure that they establish their businesses in the areas with a high target market. Nearly all Japanese automotive companies abroad are located in labor-intensive areas and places endowed with numerous natural resources. Finally, the companies ensure that they practice internalization where the major investors are the controllers of the assets of the companies. The major investors are the ones who conduct major decisions such as terminating agreements, copying technology and even introducing new products in the market.

Management in Japanese Automobile Industry

The management of automobiles in Japan mainly utilizes lean production in their manufacturing sector. The design was originally developed for Toyota Company, and other companies adopted it with time(Dennis and Shook, 2012, p.56). It is also known as just in time production, which utilizes lean thinking system. The strategy focuses on eliminating waste by empowering workers, maintaining the right amounts of inventory, and improving productivity. The approach avoids maintaining resources or producing inventory in anticipation of future business transactions(Black, 2008). This is to ensure that they reduce costs associated with holding inventory and producing goods that are not demanded. In this management system, products are manufactured on order from either clients or distributors.

The system also builds partnerships with suppliers to ensure that they provide them with information regarding production(Nicholas, 2008). The companies utilize their multi-skilled employees who use a flexible method of management. They can produce the goods once they are demanded to maintain high quality for products and standards for production. The governance structure is flattening, and the resources are utilized flexibly. Changes are enacted quickly, and the system responds very fast to market demands. The system ensures that Japanese automobiles are the leaders in the industry because they respond to customers' needs faster than all their competitors.

Information flow is another core part of the Japanese management style(Kochan et al., 2007, p.34). The senior management usually has a hands-on approach where they play a supervisory role. Policies often originate at the middle levels of the company and the executive enact them into the organizational culture. The main advantage of using this method is that the people who shape decisions implement them also.

The higher a Japanese manager raises in the automotive industry, the greater the chances that his or her role is assumed in the organization. The managers rise to the executive positions because of their personality and effectiveness in managing the middle-level supervisors. They provide an environment for the rest of the organization to flourish. They are the individuals who are accessible to help the members of the company and share knowledge on production willingly especially with new members of the organization. The rest of the team members feel free to interact with the managers and keep them fully informed on all developments in the organizational structure. When the relationships between managers and the workers are perfect, it forms the basis of good management and teamwork.

Other vital areas that the management system looks at are ensuring a pull production system, which focuses on customer demand for products, meeting customer requirements, doing the right things at the first time of production and designing a rapid changeover when a need arises. The industry also focuses on creating a culture of continued improvement on their products (Askin and Goldberg, 2002, p.45).

Role of Government in Stimulating FDI

The Japanese government takes a keen interest in ensuring that automobile industries are successful in their international business. They help their industries to develop methods of evaluating and screening potential investment projects. The Research and Development centers in Japan often help the investors to determine the appropriate projects that they should invest in. When the investors are seeking to enter markets with strong government policies such as tax rates, legal procedures, and barriers to entry, the Japanese government helps the investors to go through them. The states ensure that they invest with the least costs possible and connect them to existing business partners in the country especially those that are service related.

The automotive companies from Japan ensure that they utilize a comparative institutional advantage in all their businesses abroad(Sturgeon et al., 2008, p.26). They locate their firms and production facilities in the best locations in the foreign countries. When choosing the location areas, they avoid countries with weak economies, corrupt states, neoliberal policies, and underdeveloped areas. During entry, the automotive industries begin by focusing on small-sized companies. They avoid wasting their time on developing vast corporations. They get great value for the opportunities in foreign markets and improve them over time. The industries began by producing components until they ended up being major producers worldwide beating major producers such as Germany, United States, and even China. Finally, the last strategy that the automotive industry used was the use of indexed investment. The automotive companies put themselves under pressure to ensure that they outperformed the car industry across the globe. The companies were able to outdo all other investors due to their institutional advantage.

Political Economy of Japan

The economy of Japan is a large power despites the fact that there has been significant economic stagnation in the rest of the world. Japan is economically still, and it has been ranked as a large economy globally. The economy of the country was stable when the automotive industries were initially seeking to enter foreign markets. During the first years of entering the international market, the World War 2 and the Hiroshima and Nagasaki atomic bombs devastated the economy. However, the economy was able to recover within no time with a great focus on the manufacturing sector, which mainly compromised of the automobile industry. The rapid development of the economy in Japan after major disasters in their country gave the automotive industry an upper hand worldwide. A stable economy that is majorly controlled by the government was the greatest advantage for the auto industry.

The automotive industry uses the internalization theory of foreign direct investment(Denisia, 2010, p.105). The multinational companies have developed over time since they organize their internal activities into specific advantages, which they exploit. The companies ensure that even in foreign markets, their benefits of using the benefits in the industries so that the profits are greater than the costs of production and operation. They also ensure that the benefit outweighs market imperfections to try to make sure that there is perfect competition in the industry where automobiles from Japan are the major market leaders. The industries incur lower costs of information flow, risks associated with exchange rates and even different treatment by various governments. The theory that the manufacturers often use is more of a firm-level strategy decision as compared to a capital marker financial decision.


The Japanese automotive companies have been able to compete globally because of native characters in their way of doing business (Shibata, 2016, p.76). First, the attitudes and characteristics of the Japanese people vary widely from other countries across the world. The Japanese managers value their workers, and the suggestions that they receive from them are seen as ideas to promote the operating efficiency of the automotive companies. Other companies from countries such as North America, the United States, Korean, and even China view the suggestions given by employees as a threat to the management. They perceive the need for change as a chance to create trouble, and this reduces the chance for continuous improvement of their products significantly.

Another fundamental difference that gives the Japanese automotive a competitive edge is the policies and focus areas of their management (Plunkett, 2010, p.67). The Japanese managers usually concentrate more on the long-run competitive strategy of their companies by ensuring that they are producing the consumer-specific products at the lowest costs possible. However, other major competitors such as German, China, and the United States usually focus on the short-run financial performance where the focus is to achieve profits. For example, the automobile companies from Japan do not submit quarterly reports to their stockholders as opposed to those from other businesses.

Apparently, the automotive industries from Japan have taken over the industry, and they are sure to keep increasing their market share worldwide. The success of the industry is an impressive and a puzzling achievement especially after considering that their success as multinationals began after wars and crises in their country. The success is measurable and noticeable, and there are reasons for it. The interest of the government in making Japanese automotive industries work abroad for the social benefit of the country is undeniable. The support of their government has helped in their success as multinationals. The Japanese managers also take competitiveness seriously and since they are still the major shareholders in their companies abroad, they make decisions that meet customer-specific products. Finally, the business heritage of the Japanese is a factor of success that cannot be hidden. The policies and strategies that they utilize in their management are the keys to success.


Askin, R.G. & Goldberg, J.B., 2002. Design and Analysis of Lean Production Systems. 1st ed. New York: Wiley Publishers.

Black, J., 2008. Lean Production: Implementing a World-class System. 1st ed. New York: Industrial Press.

Cheung, G.C.K., 2003. The Political Economy of Japan: An Analysis of Kokutai and Keizai-zai. 2nd ed. New York: Eastern Universities Press.

Denisia, V., 2010. Foreign Direct Investment Theories: An Overview of the Main FDI Theories. Academy of Economic Studies, 2(2), pp.100-09.

Dennis, P. & Shook, J.R., 2012. Lean Production Simplified: A Plain Language Guide to the World's Most Powerful Production System. 3rd ed. New York: Productivity Press.

Jacobs, A.J., 2016. The New Domestic Automakers in the United States and Canada: History, Impacts, and Prospects. 2nd ed. Lanham: Lexington Books.

Kenney, M. & Florida, R.L., 2003. Beyond Mass Production: The Japanese System and its Transfer to the U.S. 1st ed. New York: Oxford University Press.

Kochan, T.A., Lansbury, R.D. & Macduffie, J.P., 2007. After Lean Production: Evolving Employment Practices in The World Auto Industry. 1st ed. Ithaca: ILR Press.

Magee, D., 2007. How Toyota became #1: Leadership Lessons from the World's Greatest Car Company. 3rd ed. New York: Portfolio Publications.

Miyoshi, H. & Nakata, Y., 2014. Have Japanese Firms Changed?: The Lost Decade. 2nd ed. Basingtoke: Palgrave Macmillan.

Mondt, R., 2000. Cleaner Cars: The History and Technology of Emission Control Since the 1960s. 1st ed. Warrendale: Society of Automotive Engineers.

Nicholas, J., 2008. Competitive Manufacturing Management: Continuous Improvement, Lean Production, Customer-focused Quality. 2nd ed. Boston: Mc-Graw Hill Publications.

Plunkett, J.W., 2010. Plunkett's Automobile Industry Almanac 2011. 12th ed. Houston: Plunkett Research Publications.

Shibata, H., 2016. Explaining Productivity Differences: Comparative Analysis of Automotive Plants in Japan, The United States, Thailand and China. 1st ed. Berlin: Springer Science and Business Media.

Sturgeon, T., Biesebroeck, J. & Gereffi, G., 2008. Value Chains, Networks and Clusters: Reframing the Global Automotive Industry. Journal of Economic Geography, 1(1), pp.1-38.

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