Mitsubishi Motors Corporation, its investment in Thailand, and proposed sustainable strategies for the next 10 years
Executive Summary
Automobile sector is undoubtedly one of the most dynamic sectors in the world. This industry often puts unprecedented challenges in front of the trade pundits due to the changes which take place at break-neck speed. But many experts believe that automobile sector is one of the indicators of the industrial development of a country. There are several factors which change the course of automobile industry viz., FDI, fiscal and monetary policies, rate of raw materials and the business environment of a nation. This industry follows a tupsy-torvy rout. More often than not you are bound to see a growth pattern in the span of some months and immediately, something could go wrong and the industry becomes ready for a slowdown. Such an unpredictable scenario put the experts in frenzy.
In recent years, however, the automobile sectors throughout the world are experiencing a downward growth spiral. First the American economic crisis and now the European debt crisis has left some deepest possible scars on the face of Automobile industries the world over. People in these parts of the world are left with a little disposable income and their spending power has taken a serious hit in the span of last four years. Subsequently automobile industry also came under the umbrella of economical repression. The investment in automobile sector worsened with the passing time and the existing big players halted every business plans involving the investment opportunities (in a country or a plant) and acquisitions (of a foreign or a domestic player). Moreover, the competition in the world grew and GM once again out-staged Toyota to become the No. 1 Automobile seller in the world.
Mitsubishi Motors Corporation is one of the Japan’s largest multinational automobile manufacturers with headquarter in Minato, Tokyo (Mitsubishi Motors, 2012). Once upon a time, it was part of the biggest industrial group in Japan known as Mitsubishi Keiretsu and was formed in 1970 as the automotive division of Mitsubishi Heavy Industries (Funding Universe, 2012).
This study is undertaken here to have an insight about Mitsubishi Motor’s investment strategies in Thailand and find out whether these strategies can be sustained over the course of upcoming 10 years.
Introduction
Overview of Japan’s Motor Manufacturing Industry
Automobile sector has emerged as one of the largest and the most prominent industries in Japan. Japanese automobile manufacturers are regarded as one of the best players in the automobile industry throughout the world in terms of quality in their offerings. Japanese automobile industry was the largest motor manufacturer in the world till 2008 which cemented their status as the finest automobile manufacturer in the world. However they lost this position to the China in 2009 who also happens to be the current world leader in automobile manufacturer in the world now.
Japanese automobile manufacturers started making vehicles in the late 1910’s when they started making commercial trucks for the domestic uses. However the demand for the trucks increased greatly during the Second World War. Till that day, they were modeling their vehicles (Trucks mainly) after the designing of European products. Since the demand was very low prior to the Second World War, the Japanese manufacturers were designing and making their own vehicles or tying up with a European manufacturer to produce and sell their vehicles under the license. But the Second World War changed this scenario forever. The Japanese manufacturers dared to take an extra step after this event and shed their image of a follower. They finally decided to use their expertise to design and sell their vehicles on their own (Japan Automobile Manufacturers Association n.d.).
In the years to follow, Japanese automobile manufactures made rapid strides in the field of Robotics Engineering. By the end of 1970’s, they became an expert of immeasurable repute of Robotics and started using this technology in the field of automobile manufacturing (Japan Automobile Manufacturers Association n.d.).
Japan is the home of a horde of famous automobile manufacturers in the world. The list includes some of the best players in automobile industry like Toyota, Honda, Nissan, Mazda, Suzuki, Mitsubishi, Isuzu, Kawasaki etc.
Overview of Mitsubishi Motors Corporation and its investment in Thailand, specifically Mitsubishi Motors (Thailand)
Mitsubishi Motors is the sixth largest Japanese and the sixteenth largest automobile manufacturer in the world with an employee base of 30,709 and revenue in excess of ¥1,828 billion (Mitsubishi Motors, 2011). It was founded in April 22, 1970. The key people of Mitsubishi Motors include Takashi Nishioka as the chairman of the company and Osamu Masuko as the president and representative director (Mitsubishi Motors, 2012).
Mitsubishi Motors (Thailand) Co., Ltd. (MMTh) is the Thai subsidiary of Mitsubishi Motor Corporation (Mitsubishi Motor , 2012). Ever since its inception, it has witnessed a phenomenal growth. It became the country’s first automobile manufacturer to sell and export the vehicles in overseas markets and in meanwhile, became the largest exporter of automobiles in Thailand. The company owns the brands like Lancer, Grandis and L 200 Strada/Triton which are produced locally (Mitsubishi Motors press release, 2005).
The Thai subsidiary is one of the four largest Mitsubishi facilities outside Japan. In the recent years, the company has sensed a surge in demand for the pick-up trucks in the country and thus is planning to invest 21 billion Thai baht (1 billion Japanese yen) in upcoming years (Santan Santivimolnat, 2004).
Thailand is one of the most productive automobile markets for Mitsubishi. For the last 20 years, the operations of Thailand have helped Mitsubishi elevate its status as one of the world’s finest automobile manufacturer. Mitsubishi’s Thai operations have become the company’s number one production and export hub in the world. Seeing the future in a brighter light, Mitsubishi has recently announced to invest an additional 1 billion Thai Baht in 2013 to raise the production at its Bt15-billion third assembly plant in Thailand (Kanittha Panthong 2012).
This new strategy is showing the importance of Thailand in Mitsubishi’s future plans. The Thai auto market is expected to touch a figure of 2 million vehicles per year, an increased figure from a record 1.35 million this year which surprisingly beat the forecasted figure of 1.20 million. Mitsubishi strongly believes that Thai market is still has the chances to grow and is far from saturation. Thai Government has introduced a new program known as First Car Buyer Programme which has boosted the car sales in the country lately. Mitsubishi has a forecast for future which estimates the car sales around 1.1 million-1.2 million in 2013 (Kanittha Panthong 2012).
Mitsubishi is posting healthy figures year after year in Thailand. Last August, it sold 11,653 vehicles in Thailand, showing an increase of 77 per cent from August 2011. The sales figure for the passenger cars has shown an unbelievable increase of 580 per cent and reached the figure at 4,131. This surge in Passenger car sales is fuelled by the introduction of Mirage eco-star car which has been highly popular in Thailand. All these encouraging figures were further boosted by an increase of 25.9 per cent in the pickup sales category elevating the sales at 7,522 units. Mitsubishi currently has the market share of almost 10 per cent in Thailand and they want to increase it by more than 15 per cent in upcoming years (Kanittha Panthong 2012).
In 2010 Mitsubishi Motors, in order to check the possibility of using electric cars in Thailand, signed an agreement with the Thai government. They once again joined hands with the Metropolitan Electricity Authority and PEA Encom International to work on an infrastructure plan for the Thai cities and conduct a market research pertaining to increased traffic problem in Thailand in mid-2011. (Kanittha Panthong 2012). In this way, Mitsubishi Motors Thai subsidiary is contributing significantly to the growth of That Automotive industry which ultimately leads to the growth of the nation.
External Analysis
Micro Analysis
A. SWOT Analysis
1. Strength
a. Mitsubishi is a multinational automobile manufacturer. It has deep pockets and spends a lot of money in every emerging market like Thailand, China and India.
b. Brand image of Mitsubishi is a powerful tool and it enhances Mitsubishi’s prospect in any market where it wants to operate.
c. Being a Japanese brand, Mitsubishi stands for excellent quality of its automobiles. The quality is one criterion which gives it an edge over its competitors.
d. The versatility in the offerings of Mitsubishi (its products include commercial trucks, cars, pick-ups etc.) makes it a go-for destination for a consumer.
2. Weaknesses
a. Mitsubishi market share in other markets like Europe and America as well as in its home, Japan is decreasing sharply leading to an uncertain future.
b. Mitsubishi has lost its leadership position as the topmost manufacturer and exporter of automobiles in Thailand which is a danger sign of growing competition in the market.
3. Opportunities
a. Investment in a growing market like Thailand will give a boost to Mitsubishi’s worldwide operations as Thai subsidiary is bringing huge chunk of profits to Mitsubishi Motors. Mitsubishi can utilize this money to improve its business operations in other countries where it is not doing too well.
b. Investment in a developing country like Thailand will enhance the image of Mitsubishi Motors among other Asian developing countries as the favorite investor in developing countries.
c. After showing a superb performance in Thailand, Mitsubishi can further enhance its repute by entering the country’s sociological sphere. It can introduce several initiatives to elevate the life styles of Thai citizens. In this way, the CSR policies could prove beneficial to the Mitsubishi operations.
4. Threat
a. There is always a threat of new entrants in the market who tries to survive in the market by cutting the market share of existing players.
b. A sense of complacency can persist in a feel-good scenario. In this way, the company could ignore the loopholes in Thailand operations which can lead to discrepancies in the system.
c.Thai Market has proved itself a goldmine for Mitsubishi’s operations. So putting too much emphasis on a single market can prove fatal for Mitsubishi’s operations pertaining to other countries.
Macro Analysis
B. Porter five forces analysis
Threat of New Entrants
A market which has the potential of generating a lot of revenue will attract the maximum entrants. That market is considered ideal which has the high entry barriers and low exit barriers because it will allow few good-enough marketers and can provide an easy exit to those players who are not making sufficient profit. As we’ve discussed and seen earlier with the help of data that Thai market still has a lot of scope to develop, many players will be eager to make an entry into it. So Mitsubishi’s decision to invest further in Thailand will prove beneficial and secure its future in a cluttered market. Threat of Substitute Products and Services
The threat of substitute products or services can not only come from a direct competitor but also who is not a competitor at all. For example, if Mitsubishi increases the price of its products to an unacceptable level, people might incline towards the bicycle uses. So Mitsubishi will use its market share not by the hands of Toyota or Ford or GM but to a local bicycle manufacturer. So an investment regarding increasing the capacity of its production level will cheapen its product and improve its visibility more in Thai Market.
Bargaining Power of Customers (Buyers)
Being the second largest manufacturer and exporter in Thai market suggests that Mitsubishi has a strong foothold in Thai market. The consumer preference toward it is excellent. In this way, it’s very unlikely that a consumer go to a new entrant or any other existing competitor if Mitsubishi is already there with what consumer wants. However, if a new entrant comes with better products in the same price category, Mitsubishi should have to change its strategy to combat it as the consumer bargaining power will increase significantly. But more investment from Mitsubishi will ensure more automobiles and thus more options for Thai people ultimately resulting in low interest in other substitutes for those who prefer Mitsubishi Motors.
Bargaining Power of Suppliers
Mitsubishi’s idea of investing some more in Thailand will enhance its goodwill there. Moreover, it can give Mitsubishi a chance to charge some extra few bucks from the customers in order to break-even as soon as possible. But this could be a case when Mitsubishi will act as a supplier. When Mitsubishi will act as a buyer for its local suppliers, suppliers having the knowledge of Mitsubishi’s investment can relax their bargaining knowing that it is a solid player and wants to strengthen its position here. So ultimately Mitsubishi will get good results out of its investment in Thailand.
Competitive Rivalry within the Industry
A powerful business plan consisting of innovation, advertisement strategies, flexibility and good minds can outplay any competitor at the marketplace. Fortunately enough, Mitsubishi has got all these things at the right place and at a right time. In most of the cases, innovative practices and quality of the products/services give you a competitive advantage at the marketplace. Add to it some investment and successful execution and you could emerge as a winner. Mitsubishi is currently at second place in the exports chart of automobiles and their decision of making some more investments can give them the much-desired first place in Thai market.
C. PESTEL Analysis
a. Political – As Mitsubishi is operating in the country for the last 20 years, the Thai government must have been very helpful to Mitsubishi in terms of relaxation in tax policy, trade restrictions, tariffs etc. Their idea of investing further in the market will strengthen their ties some more with Thai government.
b. Economical – Mitsubishi’s idea of investing more in Thailand will provide a positive thrust to Thai automobile market. It’ll further fuel its growth in the market as it’ll make more cars and trucks. Main economic factors which influence a firm finances are economic growth, interest rates, exchange rates and the inflation rate. For example, interest rates influence a firm’s cost of capital and therefore decide the business’ future prospects like its growth pattern and future expansion plans. Similarly, Exchange rates determine the supply and the costs of exporting goods and affect the pricing policy of imported goods in an economy
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