The Light Commercial Vehicle Market in Europe
Evaluating the Opportunities For Mitsubishi
Motors
The Light Commercial Vehicle Market in Europe
Evaluating the Opportunities For Mitsubishi Motors
Final Thesis
Groningen, 6
stof December 2004
Author: Mr. M.M. Naaijkens
Supervision University of Groningen
Drs. R.W. de Vries Dr. E.P. Jansen
Supervision Mitsubishi Motors Europe
Mr. C. Lazaronni Mr. W. Verschuur Mr. A. Schmidt
The author is responsible for the contents of this research report; the author holds the copyright of this report
Preface
This final thesis marks the end of my study at the University of Groningen, as a student of International Business at the Faculty of Management and Organization. My period as an intern at Mitsubishi Motors Europe has provided me with a wonderful opportunity to conduct research in the dynamic automotive industry. Therefore I would like to thank Mitsubishi Motors for this wonderful possibility. This internship has given me useful insights, both on a personal and a professional level, and will proven me valuable in the near future
I would like to thank a number of people. First of all I would like to thank all the members of the Product Marketing Management department at Mitsubishi Motors Europe for helping me to realize this final thesis. A special word of thanks goes to Carlo Lazaronni, for his insights, his help and friendship. Furthermore I would like to thank Andre Schmidt and Willem
Verschuur for giving me this opportunity at Mitsubishi Motors and their insights and feedback on my research.
Also I would like to thank Rudi de Vries and Pieter Jansen of the faculty of Management and Organization for their clarifying insights and, most important, patience.
Finally I would like to thank my friends and family for their support during the finalization of my thesis and my study at the University of Groningen. Thank you all.
Maarten Naaijkens
Groningen, 6th of December 2004
Management Summary
The European market for passenger cars is becoming increasingly more competitive.
Automotive manufacturers have increased their productivity and competitiveness but the overall economic environment remains challenging. The different players in the automotive industry are facing an uphill battle to cope with the high fixed costs involving their production facilities. With the current development of the automotive market for passenger cars, which is projected to show little growth in Europe for the coming years, automotive manufacturers have to find new ways in order to stay competitive. A clear trend is visible that automotive manufactures are looking for new opportunities to exploit their production facilities by entering new and less competitive market segments.
Mitsubishi Motors, in line with the other manufacturers, also faces a highly competitive passenger market and therefore is looking for new European market segments to enter. The European division of Mitsubishi Motors is of the opinion that the market for Light Commercial Vehicles, could generate profit opportunities in the future and should be investigated.
Therefore the purpose of this thesis is to provide an analysis of the market for Light Commercial Vehicles and to give a comprehensive evaluation of the strategic options to enter this segment.
In order to be able to give a strategic recommendation the research has focused on the internal and external environment of Mitsubishi Motors. The internal environment of
Mitsubishi Motors, which has been reflected in the internal strengths and weaknesses of the company, shows clear restrictions for Mitsubishi Motors to enter the market. With the recent financial downfall of Mitsubishi Motors in both the Japanese and North American market it can be concluded that the research & development costs, which are related to the introduction of a new model in the Light Commercial Vehicle market, are too high. The current situation clearly does not favor in-house development. Still the heritage of the former L300 midsize van has show their capability to be successful in this market and the availability of a customer base which is facing replacement of their van. They could also benefit from the increasing success in Eastern European markets by offering new products in this market.
The analysis of the external environment supports Mitsubishi Motors’ opinion that the market for Light Commercial Vehicles could generate profit opportunities. After 2005 it is expected that the highly competitive Western European market development is nearly stagnating with a growth rate equaling 0.5% to 1%, which will mean that Mitsubishi Motors will face a difficult
task to gain any extra market share in Europe. Especially the Eastern European markets, with sales volumes for Light Commercial Vehicles eclipsing a growth rate of more than 47%
until 2008.
.
Keywords:
Strategic Marketing, Internal Analysis, External Analysis, Automotive Industry, Light Commercial Vehicles, Mitsubishi Motors
Table of Contents
Introduction ...7
Chapter 1. Research Design ...9
1.1 Introduction ... 9
1.2 Problem Definition... 9
1.2.1 Environmental context of the problem... 9
1.2.2 Objective ... 10
1.2.3 Main research question... 10
1.2.4 Sub questions ... 10
1.2.5 Constraints and delimitation ... 11
1.3 The research approach ... 11
1.3.1 Type of research ... 11
1.3.2 Method of data collection ... 14
1.4 Research design ... 15
1.4.1 Literature Review ... 15
1.4.2 The Internal Analysis... 16
1.4.3 The External Analysis ... 18
1.4.4 Market Development ... 21
1.4.5 TOWS-Matrix ... 22
1.5 Conceptual Model ... 22
Chapter 2. The Company Mitsubishi Motors...24
2.1 Introduction ... 24
2.3 Mitsubishi Motors Europe... 25
2.4 Eastern and Central Europe... 27
2.5 Block Exemption Regulation (BER)... 28
2.6 Mitsubishi Motors’ Commercial Vehicle Market in Europe ... 29
2.7 Organizational Capabilities and Constraints: The end of the Alliance... 30
2.8 Financial results ... 32
2.9 Conclusion ... 33
Chapter 3. Macro Analysis of the Automotive Industry in Europe ...34
3.1 Introduction ... 34
3.2 The Political and Economical Dimension ... 34
3.3 The Economical Dimension ... 36
3.4 The Socio cultural dimension ... 38
3.5 The Technological Dimension ... 40
3.6 Conclusion ... 41
Chapter 4. The developing LCV Industry...42
4.1 Introduction ... 42
4.2 Dynamics of an industry... 42
4.3 Conclusion ... 44
Chapter 5. The LCV Market...46
5.1 Introduction ... 46
5.2 Defining the Market for LCVs ... 46
5.3 The Buyer or User Characteristics ... 47
5.4 The competition... 49
5.4 Market forecast ... 55
5.5 Conclusion ... 57
Chapter 6. Strategic Recommendations ...58
6.1 Introduction ... 58
6.2 Internal Weaknesses... 58
6.3 Internal Strengths... 59
6.4 External Threats... 60
6.5 External opportunities ... 61
6.6 Conclusion ... 62
Literature ...64
Introduction
It is evident that the automotive industry shares the economic slump of recent years.
Although there seems to have been a slight recovery, the recent sales figures1 for the European market for passenger cars provide a clear picture. Sales of passenger cars are slightly dropping in the main Western European markets and automotive manufacturers are facing a highly competitive market, where economics of scale are important in order to cope with the fixed costs of production facilities.
As most automotive manufacturers, Mitsubishi Motors is confronted with the problems of a declining demand for passenger cars in a highly competitive European market. Therefore Mitsubishi Motors is actively looking for new opportunities in different segments of the automotive market. The commercial vehicle market is one of the segments that has drawn the attention of several automotive manufacturers. This because over the last few years the commercial vehicle market has shown reasonable market growth in a stagnating European market.
Mitsubishi Motors has had a presence in the European commercial vehicle market, specifically the market for Light Commercial Vehicles (LCVs). LCVs can be defined as vehicles involved in the transportation of goods and/ or the provision of commercial passenger and road transport services2. Mitsubishi started to produce this model for the European Market in 1989. The European line up was mainly based on the production of L300 vans, covering passenger vans as well as window vans and panel vans. At the end of 2002 the production was ended and no follow up was to be introduced. Although the L300 is still sold, mainly in Turkey and Cyprus, this marked the end of Mitsubishi Motors’ involvement in the specific midsize van segment, with only the current L200 Pick Up available for the LCV market in Europe.
Mitsubishi Motors is of the opinion that it should enter new segments of the automotive market to be able to cope with the slump in passenger car sales. The commercial vehicle market is seen as attractive because of its considerable growth3, compared to sales of passenger cars, and the established customer base of the L300, which is close to
replacement. With their heritage in the commercial market for midsize vans (the L300) they
1 www.acea.be/publications
2 Durance, J. (2002), p.294
3 In the past Mitsubishi Motors has conducted research for the commercial vehicle market
are of the opinion that there are profit opportunities for Mitsubishi Motors to re-enter the market for LCVs.
Therefore Mitsubishi Motors has asked me to conduct a strategic market analysis to gain more insight in the current market for LCVs and to create a level of understanding considered high enough to provide a basis for decision making on a strategic level.
Chapter 1. Research Design
1.1 Introduction
In the following chapter the research design will be discussed. It gives insight in the background of the research and provides a structure for the thesis outline. Also the framework and the methodology of the research will be discussed.
1.2 Problem Definition
Based on the background of the research and the needs of the department the following problem definition can be derived. The problem definition consists of the environmental context of the problem, the objective of the research, a main research question, sub questions and constraints and delimitations of the research4.
1.2.1 Environmental context of the problem
The European market for passenger cars is becoming increasingly more competitive.
While Europe’s carmakers have increased their productivity and competitiveness, the conditions in which they operate have worsened, and the overall economic environment remains challenging. Domestically, the EU car market is the most competitive and least profitable in the world due, in large part, to the costs of doing business in Europe. The different players in the automotive industry are facing an uphill battle to cope with the high fixed costs involving their production facilities. With the current development of the
automotive market for passenger cars, which is projected to show little growth in Europe for the coming years, automotive manufacturers have to find new ways in order to stay
competitive. A clear trend is visible that automotive manufactures are looking for new opportunities to exploit their production facilities by entering new and less competitive market segments.
As concluded before Mitsubishi Motors sees the commercial vehicle market as a good opportunity to increase their market share and a possibility to utilize the established customer base of the L300, which is close to replacement. Because their current knowledge of this specific market is very limited a strategic market analysis is needed. This leads to the following objective.
4 De Leeuw, A.C.J.(1990), p.97
1.2.2 Objective
The objective of this research is to provide Mitsubishi Motor Europe (MME) with an overview on developments in the market of Light Commercial Vehicle in Europe and to give strategic recommendations to Mitsubishi Motors about re-entering the market of Light Commercial Vehicles. This leads to the following main research question.
1.2.3 Main research question
Should Mitsubishi Motors Europe (MME) re -enter the European market for Light Commercial Vehicles, in particular the Midsize Van segment?
The main research question is divided in three sub questions. This split is based on the methodology of Aaker (2001) and Alsem (1998). Both are well known authors in the field of strategic marketing management and offer a three-step analysis to evaluate the market and to determine appropriate strategic recommendations. The first step is to establish a
comprehensive view of the internal environment; the company itself. This in order to agree on the capabilities and constraints of Mitsubishi Motors. The second and third step both highlight the external environment. The second sub question focuses on a macro
developments in the automotive industry and more specifically the light commercial industry.
Macro environmental analysis is of importance because of the assumption that developments in the macro environment affect industries and the organizations which contribute to the industry. ‘We conceive of the macro environment as consisting of four segments or sets of forces: social, economic, technological, and political. Macro
environmental is thus the analysis of current and potential change in these segments and the assessment of their implications for strategic management’5. The focal point of the third question is on a lower (micro) level, defining the market for LCVs and establish an understanding on the growth potential.
1.2.4 Sub questions
1. Which capabilities does MM have to successfully re-enter the European market?
a. How can the current and past strategy for MM in Europe be defined?
b. What are the organisational capabilities and constraints?
c. Is there a financial base to start with new product development?
5 Fahey (1986), p.3
2. What are the opportunities and threats in the Light Commercial Vehicles market?
a. What are the main trends and developments in the European LCV market?
b. Which regulations and pubic policies influence the LCV market?
c. How can past and future developments be evaluated?
3. How can the market for Light Commercial Vehicles be characterized?
a. How should the LCV Market be defined?
b. What is the current and future size and nature of the market?
c. Which main market segments can be identified?
d. Who are the key competitors
e. Who can be identified as the target customers?
1.2.5 Constraints and delimitation
• This research is limited to Product Marketing Management. However, Mitsubishi Motors as a whole is considered as well.
• This research focuses on a particular part of the LCV segment: the mid size Van
• The research is limited to the main European car markets (France, Germany, Italy, UK & Spain) and Turkey, known as a key market for Mitsubishi Motors in Europe.
• The research itself should be executed within seven months, starting at January 2003.
1.3 The research approach
Business research can be conducted in numerous ways and therefore a large range of typologies can be identified. Each of these typologies has its own approach and level of aggregation. This paragraph will discuss some of these approaches, relevant for the research at Mitsubishi Motors Europe.
1.3.1 Type of research
De Leeuw6 identifies three types of research that can be conducted, based on the depth of the problem definition:
6 De Leeuw, A.C.J. (1990), p.117
1. Fundamental research; aimed at increasing knowledge concerned with scientific and societal issues.
2. Managerial supportive research; gaining knowledge on strategic issues for a client.
3. Problem solving research; solving a clearly defined company problem.
In this case the research will support the decision making process related to the market entry of the LCV segment. Therefore the research will be conducted from a managerial supportive perspective.
The concept of environmental scanning7 is very useful to develop this managerial supportive perspective. The purpose of this method is to look at the different ways in which top
management obtains relevant information about events occurring outside the firm in order to guide the company’s future course of action8. Aguilar9 defines environmental scanning as the managerial activity of learning about events and trends in the organization’ environment.
There are two distinct approaches to environmental scanning, the ‘outside-in’ or macro approach and the ‘inside-out’ approach10. The outside-in approach adopts a broad view of the environment. It looks at all the existing elements in the external environment, which the organization faces. Its main concerns are the longer-term trends, the developments of alternative views or scenarios of the future environment, and the identification of the implications for the industry and the firm itself. The inside-out approach takes a narrow view of the environment. It focuses on far fewer elements in the outside environment as its view is constrained by the internal influences within the organization. For the main differences see table 1.
The Focus and Scope. As put forward Mitsubishi Motors is of the opinion that it should evaluate new market segments. Research in the past has shown that the commercial vehicle market could offers profit opportunities for MME because of its high growth rates. To get an efficient overview of the market the focus will be on the five key markets of Europe. But to get a comprehensive view on the overall market opportunities Western and Eastern Europe as a whole will be evaluated. This will also include Turkey because it represents a historically important commercial market for MME.
The Goal. The objective of this research is to provide Mitsubishi Motor Europe (MME) with an overview on developments in the market of Light Commercial Vehicle in Europe and to
7 Aguilar, F. (1967), p.18
8 Costa, J. (1995), p.211
9 Aguilar, F. (1967), p.20
10 Fahey, L. & Narayanan, V.K. (1986), p.86
give strategic recommendations to MME about re-entering the market of Light Commercial Vehicles. The research is focused on the environmental analysis relevant to the current organization.
Time Horizon.
Frequency. This research can be seen as a continuous process, starting with a preliminary research in 2003. This report will represent another step in the strategic planning process.
Based on these characteristics an inside-out approach is most appropriate to be used in this research.
Outside-in Inside-out
Focus and scope Unconstrained view of environment View of environment constrained by conception
of organization
Goal Broad environmental analysis before Environmental analysis relevant to current considering the organization organization
Time horizon Typically one to five years, Typically one to three years Sometimes five to ten years
Frequency Periodic/ ad hoc Continuous/ periodic
Strengths Avoid organizational blinkers Efficient, well-focuses analysis Identifies broader array of trends Implications for organizational action Identifies trends earlier
Table 1. Environmental Scanning/ Source: Aguilar (1967)
Research designs may be broadly classified as exploratory or conclusive11. The primary objective of exploratory research is to provide insights into and understanding of marketing phenomena. Its primary objective is to gain insight into and comprehension of the problem situation confronting the researcher. Conclusive research is designed to assist the decision maker in determining, evaluating and selecting the best course of action to make in a given situation (see table 2).
The major difference between exploratory and conclusive research is that conclusive research is characterised by the prior formulation of specific research questions. The information needed is clearly defined. Thus for this thesis the most appropriate classification is the conclusive design. The conclusive design can be divided into the descriptive approach and the causal approach.
11 Malhotra, N.K. and Birks, D.F. (1999), p.375
This research will focus on the descriptive approach, which is used most frequent when the research has as its major objective to describe market characteristics or functions. The main objective of the research is to provide MME with an overview on developments in the market of Light Commercial Vehicle in Europe, which is in line with the descriptive approach.
1.3.2 Method of data collection
The main source of data will be secondary data. Secondary data are data collected for other purpose than the problem and is based on data already available. Secondary data offer several advantages over primary data. Secondary data are easily accessible, relatively inexpensive and quickly obtained. Because secondary data have been collected for purposes other than the problem at hand, their usefulness to the current problem may be limited in several important ways, including relevance and accuracy. So the examination of available secondary data is a prerequisite to the collection of primary data.
Primary data collection is related to the problem at hand and will involve the use of interviews.
The external analysis, aiming to provide MME with an overview on developments in the market will make use of secondary data. MME has access to extensive databases, for example the annual New Vehicle Buy Surveys (NVBS) data. JATO Dynamics and Global Insight will be used to get an overview of the competitive marketplace. These are the leading suppliers of automotive market intelligence, with up-to-date databases of vehicle prices and specifications, industry news including incentives information, sales and registrations data including forecasting.
Furthermore, automotive literature, annual reports, company statements and Internet sources will be used to complete the overview of the external and internal environment.
Table 2. Research Focus
Secondary data analysis will help to elaborate or focus on particular questions when collecting primary data. Primary data will be collected using semi-structured interviews with key managers in MME, concerned with segments related to commercial vehicles. These interviews will focus on the internal environment of MME.
1.4 Research design
This paragraph will provide an explanation on the theories and approaches, which constitute the conceptual framework of this thesis and on which the research is built. The input of the conceptual model is based on the fact that this research is exploratory and concerned with the facilitation of the strategic marketing decision making process.
1.4.1 Literature Review
This paragraph discusses the relevant literature background of the thesis. The focus will be on the main area of research of this thesis; strategic marketing management. Conceptually strategic planning seems a simple issue to cope with: analyze the current and expected future situation, determine the direction of the company and develop means for achieving the missions. In reality, this is an complex process, which demands a systematic approach for identifying and analyzing factors external to the organization and matching them with the firm’s capabilities to create sustained competitive advantage. There are different ways to evaluate these factors.
There has been growing recognition that, in order to design an appropriate strategy, one needs to understand the environment an organization acts in. Johnson and Scholes (1988) gives several characteristics related to strategic decision making. One of these
characteristics: ‘Strategy is to do with the matching of the activities of an organisation to the environment in which it operates’12. This understanding reflects a clear shift in the view of organisations as closed systems opposed to the organisation as an open systems13. Harrison (1994) offers a model for evaluating organisations in a dynamic environment. It takes the organisation as an entity which is influenced by external dimensions. These external dimensions influence internal processes and the success of the organization depends on the capability to adapt to the environment.
12 Johnson, G. and Scholes, K. (1988), p.66
13 Harrisson (1994), p.121
These show that efforts to use environmental analysis for the development of strategy have always been present in organisations14. Since the 80s, with the increasing dynamics of the environment, a shift is seen. Organisations started to conduct an environmental analysis as a more integrated effort. It is put forward the in the last two decades the organisation try to organise the internal processes in order to adapt to its environment15.
Although the last two decades both internal analyses of organizational strengths and weaknesses and external analyses have received a lot of attention in the literature, this has tended to focus primarily on analyzing a firm’s opportunities and threats in its competitive environment. Little emphasis has been placed on the impact of a firm’s own attributes on a firm’s competitive position.
The resource based view16 suggests that environmental analysis cannot be expected to improve the expectations of some firms better then others, and so it cannot be a source of more accurate expectations about the future value of a strategic resource. However, analyzing a firm’s skills and capabilities can be a source of more accurate expectations. So, from the point of a firm seeking better than normal economic performance, Barney (1986) suggests that strategic choices should flow mainly from the analysis of its unique skills and capabilities, rather than from the analysis of its competitive environment.
More recent developments on this field of research, performed by Aaker17 and Van Alsem18 are based on the combination of the internal and external analyses in order to provide the input for strategy development and the set of strategic decisions. External analysis will include analyses of customers, competitors, markets and the environment. The internal analysis begins with an appraisal of performance. It will also include an examination of determinants of strategic options, such as strategic problems and organizational capabilities and constraints (figure 3).
1.4.2 The Internal Analysis
As put forward, the fact that the strategy should match a firm’s resources and capabilities with the external environment, it should also relate to the internal environment19. Grant (2001) suggests that the formulation of a strategy should be in line with the company’s goals
14 Fahey, L. and Narayanan, V.K. (1986), p.21
15 Fahey, L. and Narayanan, V.K. (1986), p.2
16 Barney, J.B. (1986), p.185
17 Aaker, D.A. (2001), Strategic Market Management
18 Alsem, K.J. (1998), Strategische marketingplanning: theorieën, technieken en toepassingen
19 Grant (2001), p.12
and values. Developing strategies and appraising strategy is all about seeing “the big picture”, looking at the firm as a whole within the context of its industry environment. Thus, central to the view of strategy as forming an interface between the firm and its environment is the concept of strategic fit. For a strategy to be successful, is must be consistent with the firm’s goals and values, with its external environment, with its resources and capabilities, and with its organization and systems. Lack of consistency between the strategy pursued by a firm and its external and internal environments is a common source of failure. Failure to match a strategy to the resources and capabilities of the organization can be equally
disastrous. The failure of most companies, especially e-commerce companies is typically the result of strategies that overstretch limited financial, logistic, and managerial resources.
Therefore the internal environment of MMC and MME will be evaluated to determine if this is in line with market entry in the light commercial segment.
Understanding a company is the goal of the internal analysis. There are multiple approaches to pick from to analyse the internal environment. With the main focus of this thesis aiming at strategic recommendations for Mitsubishi Motors a selection of dimensions has been made of the main determinants of strategic options. These characteristics are generally known as pivotal in choosing among strategic options20.
Past and Current Strategies – Collin and Porras (2000) have a insightful study of
organizations, suggesting that past and current strategies are essential to be evaluated. First it can guide strategy, suggesting paths for the business. Second, it can help perpetuate the core of the business and ensure that its core competencies are preserved21. To understand the bases of past performance and attempt to sort out new options, it is important to be able to make an accurate profile of past and current strategies.
Organizational Capabilities & Constraints – The internal organization of a company, its structure, system and culture can be of influence on the performance of a company and therefore it can be an important source of both strengths and weaknesses. The internal organization can be important strategically when it is a source of22:
• a strength – The culture in some organizations can be so strong and positive as to provide the basis for sustainable competitive advantage
• A weakness – A firm may lack the expertise to compete in a business in which a key factor is experience in the segment
20 Aaker, D.A. (2001), Alsem, K.J. 1998), Collins, J.C. and Porras, J.I. (2000)
21 Collins, J.C. and Porras, J.I. (2000), p.21
22 Aaker, D.A. (2001), p.26
• A constraint – A proposed strategy must fit the internal organization
Financial Resources and Constraints – Strategic options clearly involve major financial decisions and therefore it is clear to monitor the financial position of a company to evaluate the company’s ability to supply investment resources.
Strengths & Weaknesses – As indicated the strengths and weaknesses of a company give insight in the possible strategic options for future developments. Future strategies should be developed by building on strengths and neutralizing weaknesses23
1.4.3 The External Analysis
A successful external analysis needs to be purposeful for the research questions. There is always the danger that it will become an endless process resulting in an excessively descriptive report. In any business there is no end tot the material that appears potentially relevant24. As figure 4 shows, it can impact strategy directly by suggesting strategic decision alternatives or influencing a choice among them. More specifically for this thesis, it should contribute to the development of a strategic recommendation.
23 Ansoff (1965), p.31
24 Aaker, D.A. (2001), p.39
Past & Current Strategies
Organizational Capabilities & Constraints
Financial Capabilities & Constraints
Strenghts & Weaknesses
Strategic choices
Figure 3/ Derived from Aaker (2001)
Porter defines the company’s external environment as a macro, industry and competitor environment25. The macro environment consists of elements that can influence an industry and the firms within it, but which cannot directly be controlled by the firms. By understanding how an external environment develops, companies can formulate strategies that are suitable for the particular industry. The external environment influences the development of the industry since they change the environment in which business is done. The demands put on companies and the skills needed to achieve success will therefore also change as a result of the different macro variables. The macro environment can be best analyzed using the PEST analysis, dividing it into the following segments:
Political/ Legal dimension – The political-legal element includes the legal and governmental systems within which an organization must function. Organizations are governed by laws that address the manner in which they function, and organizations must operate within the legal framework of the countries in which they conduct their operations.
Political pressure and processes also influence the legal system and may also influence the extent of government regulation of various laws, especially in the automotive industry.
Economic dimension – The economic element includes the current system of producing, distributing and consuming wealth. Operating within economic systems, organizations are controlled, to a large degree, by economic factors over which they have little or no control, such as interest rates and inflation. For the LCV industry it is important to see the influence of the economical development on the demand for LCVs in the European markets.
Social cultural dimension – The social-culture element includes the norms, values, beliefs and behaviours associated with the demographic characteristics. Concerns about the
25 Porter (1980), p.222
Figure 4. Alsem (1998)
environment, shifts in work and career preferences, shifts in preferences regarding product and service characteristics also can be included.
Technological Dimension – The technological element tends to evolve through periods of incremental change punctuated by technological breakthroughs that either enhance or destroy the competence of firms in an industry.
It is clear that the various segments have relationships with each other, every segment is related to and affects every other segment26. This is shown in the following model.
The industry environment is a set of factors that directly influences a company and its competitive actions and responses. The greater a firm’s capacity to favorably influence its industry environment, the greater the likelihood that it will earn above-average returns. The most common traditional model to use when conducting an industry analysis is Porter’s “Five Forces of Competition” framework27. This model shows that the profitability of the average firm in an industry depends upon five factors: rivalry among existing firms, threat from potential entrants, threat from substitute products, bargaining power of buyers and
bargaining power of suppliers. This traditional model provides a static picture and does not take into account the dynamics that influence and determines the development of fast- changing industries and the fact that this thesis will give recommendations for long range strategic planning. Furthermore, for this research it can be argued that the actors identified by Porter are the most important aspects when analyzing the light commercial industry in Europe. Still the model is very useful, when taking the general environment into account, to create a better understanding of the industry structure.
26 Fahey (1986), p.17
27 Porter (1980), p.245 Societal developments
Societal developments
Societal developments
Societal developments
Figure 5. Macro Environmental Model/ Fahey (1986)
The stakeholder environment is a next step in analyzing the environment in which MME has to act. It tries to give a clear picture of the actors which influence the LCV and its operations.
Too often businesses, even industries, have failed to move forward quickly enough because they have not taken account of the true power or authority that the various stakeholders could have over their business expectations. Compromise, a flanking movement or careful planning to be able to remove, or at least minimise the impact of those negative forces while promoting the positive ones, is an ever more important role of the provider or user.
Whereas the Porter model of the five driving forces gives an overall structural description of an industry, the competitor analysis concentrates on the present and to some extent the potential competitors. The analysis of competitors will comprise the following steps:
• Identifying the competitors - The competitor analysis comprises both present and potential customer. The starting point for identifying competitors are not the technical aspects of products or production processes but the opinions of the customers; what they consider as substitution products define the industry.
• Determining the missions goals of the competitors - It is sometimes difficult to determine the mission goals and often it is also difficult to get information on company goals. Ultimately the goal will show up in the chosen strategy. However, present strategies may not show what is to come. Therefore, information on future goals can be indicative on what future moves to be expected.
• Assess competitors strength and weaknesses – Assessing the competitors strengths and weaknesses will provide insights for the positioning of the different competitors and the future positioning of the entrée model Mitsubishi Motors is considering for the future.
1.4.4 Market Development
Naturally actual and potential market size is of importance. The size but also the growth rate are important focal point to be considered28. This dimension is useful to determine the appropriated strategy and, in this case it is relevant when selecting the current markets. The analysis of this dimension will be based on historical data used by Mitsubishi Motors for strategically decision making. This will provide a useful perspective and will help to evaluate different sub segments in order to decide on which markets to enter.
28 Aaker (1998), p.79
1.4.5 TOWS-Matrix
The TOWS29 analysis is selected to analyse the outcome of the external and internal analysis30. This because it is a traditional means of searching for insights into ways of realizing the desired alignment between the internal environment (Barney, 1986) and
external environment. This approach demonstrates the relationship between the external and the internal environment, involving strengths, weaknesses, opportunities and threats. The current and future external environment deals with trends and uncertainties concerning social, economical, political and legal factors. This analysis is very instrumental to develop strategic options according to the situation.
The first option is the S-O strategy, which purpose is to combine the organizations’ strengths and the opportunities available. Secondly, the S-T strategy’s aim is to make the most of the organizations’ strengths in order to minimize the external threats. The third option, the W-O strategy, intends to initiate actions to transform the weaknesses into strengths. Finally, the W-T strategy aims to look upon the weaknesses in order to minimize the threats’ impact.
1.5 Conceptual Model
Combining the theories in a conceptual framework leads to the following conceptual model (figure 5). The external environment is broken down in the macro environment (the PEST analysis), the Industry Dynamics (Porter’s five forces model), competitors and market
29 Ansoff (1965), p.118
30 E.g. Ansoff, H.I. (1965), Porter, M.E. (1980), Mintzberg, H. and Quinn, J.B. (1992)
S-O Strategy
W-O Strategy
S-T Strategy
W-T Strategy
External Threats External Opportunities
Internal Strengths
Internal Weaknesses
Figure 6. TOWS-Matrix/ Ansoff (1965)
development (which will be based on market forecasting). The internal environment will be based on Aaker’s model to monitor Mitsubishi Motors as a company.
The following chapters will each cover a dimension of this model. Chapter 2 deals with the internal environment, the Mitsubishi Motors Company. Chapter 3 and Chapter 4 deal with the macro environmental aspects of the thesis, analysing the industry and its dynamics. Chapter 5 evaluates the micro environment and it’s forecasted growth. Chapter 6 will summarize the related strength, weaknesses, opportunities and threats which will lead to strategic
recommendations.
Past & Current Strategies
Organizational
Capabilities & Constraints
Financial Capabilities &
Constraints Internal Environment External Environment
Macro Environment
Industry Dynamics
Competitors
Market development
Opportunities & Threats Weaknesses & Strengths
Strategic recommendations
Figure 5. Conceptual Model
Chapter 2. The Company Mitsubishi Motors
2.1 Introduction
This chapter will focus on the first sub question of this thesis:
Which capabilities does Mitsubishi Motors have to successful re-enter the European market for Light Commercial Vehicles?
It will give insight in the organisation of Mitsubishi Motors Corporation and its European division, Mitsubishi Motors Europe (MME). First a brief overview of the history of MMC and the recent developments concerning the alliance with DaimlerChrysler will be given. Also the performance of MME in the European market will be evaluated.
2.2 Past and Current Strategies: History of the Mitsubishi Motors Corporation
MMC has always concentrated on the manufacture of passenger vehicles, mini-cars and trucks. MMC has segmented its market through international regions with its main markets being domestic (Japan), North America and recently Europe. MMC specializes in the production of passenger cars. Commercial vehicles have never been their focus of attention.
Most vehicles tend to be manufactured in Japan though there are various production facilities located worldwide, the most familiar located in the Netherlands, Ned Car.
As with a number of Japanese car producers, Mitsubishi Motors grew off the back of a heavy industrial business base in Japan. It started in the 1870’s when a young Japanese called Yataro Iwasaki established a small shipping company. It started building cars in 1917 (the Mitsubishi Model A), but they were few in number and therefore not particularly interesting as a profit making division of Mitsubishi.
It was not until 1959 before full series car production commenced. Initially, the company started with mini-cars. However, in 1963, Mitsubishi was making US Jeeps under license.
The company grew quickly and in 1970 the Motor Vehicle Division of Mitsubishi Heavy Industries Ltd. became independent under the name Mitsubishi Motors Corporation (MMC).
The Chrysler Corporation had acquired a small stake in the firm. In need of compact models, Chrysler simply re -badged Mitsubishi models for the North American market. Of course, having produced Jeeps, Mitsubishi’s 4x4 knowledge was established and it started to
develop its own Pajero range. Yet it was as a manufacturer of technically complex and innovative motorcars that Mitsubishi gained the most recognition. Its rally cars over the past fifteen years have performed excellent and have awarded the company several World title victories.
The following years MMC pressed ahead with expanding its overseas production network with a view to becoming a true global player. The company started to reorganize its operations to streamline managerial bureaucracy in a bid to make it more responsive to changing market conditions, reorganize manufacture and production and improve quality.
MMC sought to develop rapid growth of their brand through development of its dealer network.
For various reasons, Mitsubishi Motors floundered without a major partner till 1999. Like Nissan, Mitsubishi Motors forged an alliance with a foreign carmaker. The newly formed DaimlerChrysler rescued Mitsubishi from its downward tumble in an age that size is all- important in an international auto industry. An alliance was born. Daimler Chrysler initially took a 37% stake. The combined unit sales and revenues of the allies put them among the top three of the world's automotive giants.
As part of the turnaround plan of MMC spun off its truck and bus operations to fully
concentrate its resources on passenger car operations. In March 2003, MMC sold 58% of its shares in Mitsubishi Fuso Truck and Bus Corporation (MFTBC) to DaimlerChrysler.
Both MMC and DaimlerChrysler continued as independent entities, with the alliance aiming at increasing the power of both parties. In respect of market access, MMC became stronger outside Asia, including North America and Europe, and DaimlerChrysler became a global player, adding Asia. The combined product mix was planned to give a better balance, to be further strengthened by cooperation in design, development, production and distribution, for growth in all markets. Both parties would also benefit from economies of scale. The New Compact Car (NCC), produced by Ned Car for the European market under the Mitsubishi and Mercedes brand names will share a common platform and GDI engine technology.
2.3 Mitsubishi Motors Europe
In response to an increasing interest MMC started to enter the European market in 1974 with the arrival of the first Lancer. In 1995 the first Mitsubishi car was produced in Europe. The Charisma rolled off the line at Ned Car in Holland, a joint venture between MMC, Volvo and
the Dutch government. Currently Mitsubishi Motors is present in over 30 countries in Europe.
With Mitsubishi Motors share close to 1.5% of the European market they are know is a small player in the Europe market. With their product development primary focused on the
Japanese and North American market it was driven by Japanese heritage, creative
engineering, spirited image and dynamic performance. But this all from a Japanese point of view, not truly interested in the European way of engineering and performance. The European market was seen as an attractive way to fully utilize their production capacity for the Japanese and North American market by importing batches to the European market.
With a product lacking the ability to challenge for real market share, for years a reasonable objective was profitable smallness. Essentially, this objective seeks solid profitability with only modest increases in marketing effort by pursuing unique market positions that are not directly competitive with those of market-share leaders31. This can often be achieved by focusing on a small segment of the market that has certain needs. Therefore Mitsubishi Motors can clearly be evaluated as a market nicher in Europe, with a market share of 1.5% in Europe32.
In an effort to create a lean, logical and unified organization, the European holding and distribution companies were merged into Mitsubishi Motors Europe in December 2002. The merger created one single entity called Mitsubishi Motors Europe B.V. (MME), a 100%
owned MMC company. It was the culmination of a year in which the company refocused, reassessed and reorganised, in order to create a unified structure for the European activities.
The reorganization was part of the worldwide Mitsubishi Motors turnaround and till now only seems successful for the European division of MMC. A year after stabilizing its business MME has returned to growth in 2003, selling 207,939 cars in the 35 countries it pilots vs.
203,028 units in 2002. The 2.4 percent increase marked the first sales increase in Europe for Mitsubishi Motors since 199933.
In detail, MME’s development strategy covers both distribution and product:
31 Guiltinan, J.P. and Paul, G.W.(1994), p.193
32 Mitsubishi Motors Corporation, Annual Report 2003, p.44
33 Mitsubishi Motors Corporation, Annual Report 2003, p.23
The main European markets are to be found in Germany, Italy, Spain, the UK and France.
Traditionally these are known as the biggest car markets of Europe (see Table X).
The European industrial activities are based in two main sites: Ned Car and IPF. Ned Car, located in Born, the Netherlands is responsible for the assembly of the Charisma and the Space Star. The IPF plant, near Turin in Italy, assembles the compact Pajero. A separate entity, Mitsubishi Truck Europe, also builds Canter trucks in Portugal. The Research &
Development facility is located in Trebur, Germany.
Figure 6. MME’s main European markets 2003/ Source: Jato Dynamics
The launch of its first new cars in three years prompted new business opportunities for Mitsubishi Motors, not only in pure terms of volume, but also through the refreshing face the Outlander crossover and the Lancer sports wagon create for the Mitsubishi Motors brand.
The successful launch of the Outlander saw the car beat its sales target of 8,000 units by 29 percent finishing the year 2003 with 10,284 units sold. Additional volume was gained through the launch of the Lancer and Lancer Station Wagon, which together brought 8,117 units.
Constant progression for the locally produced Charisma helped it grow 4.3 percent on year to 31,771 units. The L200 pickup, the company's second best seller and the pickup market leader in Europe remained stable selling 41,097 units34.
2.4 Eastern and Central Europe
Mitsubishi Motors Europe’s responsibility goes beyond the EU countries, covering a vast territory, which includes all Eastern and Central European countries, as well as Iceland, Turkey, Israel, Malta and Cyprus. It also includes Russia. Along these lines, MME set a goal
34Mitsubishi Motors Corporation, Annual Report 2003, p.56
of turning Eastern European countries into a growing and profitable region, while following the same standards as Western European countries and integrating more countries.
A strategy in line with market forecasts, whereby the development of East European countries will create more potential than the largely saturated markets in Western Europe.
The Russian market last year proved its strong potential. Now covering the full Russian territory the company more than doubled its volume in 2003 with 17,695 units, ranking second for Japanese brands and fifth out of all imported brands. MME Motors continued to proceed steadily in Eastern Europe with a 34 percent jump in sales to 12,313 units. With the expansion of the European Union MME is looking for opportunities to enhance their
appearances in the European market.
As a point of reference, at the end of 2003 MME’s main markets in Eastern Europe were35:
1. Russia – 17.695 units 2. Ukraine – 3.455 units 3. Poland – 2.729 units 4. Hungary – 2.659 units 5. Czech Republic – 1.190 units
2.5 Block Exemption Regulation (BER)
When the EU Commission decided to change the rules concerning automotive distribution in Europe, most manufacturers perceived the so-called BER as a threat. One of the few exceptions was Mitsubishi Motors, which embraced it willingly, because it considered that the new BER offered the right opportunity for a global overhaul of its sales organization. As part of its strategy, MME acknowledged the importance of distribution and After Sales as essential drivers toward customer satisfaction and brand boosting.
Building on the good reputation of its 2.950 dealers in Western Europe and its close relations with its distributors, MME elected to involve them consensually in the definition of Mitsubishi Motors norms and standards and future contracts based on the principle of selective distribution.
35Mitsubishi Motors Corporation, Annual Report 2003, p.42
This led to a fast track approach, with BER country workshops initiated as of April 2002 and final wholesale contracts signed on September 15th, 2002, before the start of the
implementation deadline set by the European authorities.
This different and pragmatic approach will allow the Mitsubishi Motors dealers to focus their attention on fully effective launches for the planned new models to come by 2007, while gradually upgrading and investing in facilities and corporate identity, as well as in training and personnel, in line with their earning potential over the coming years.
2.6 Mitsubishi Motors’ Commercial Vehicle Market in Europe
Mitsubishi Motors used to be active in the commercial segment in Europe with an offering in the van segment.
Until 1995 Mitsubishi Motors produced the L300 for the European market. It was offered as low budget working horse model that offered little convenience but would do the job. It was known for its low price but also notorious for the fact that no Euro-pallet (European standard for pallets) could be fitted in the back of the vehicle. This because the L300 was designed for the Japanese market, which had no dealing with pallets.
The existing Mitsubishi L300 vehicle park in Europe (approximately 124,000 vans since 1995) today is at or reaching replacement age. Turkey has been the key market and was responsible for around 75000 units of the vans sold. After Turkey the biggest markets for the L300 and L400 where the Netherlands, Germany, Portugal and Norway (combined sales of 52,000 since 1996 – virtually half of all sold in Europe). The sales of L300 peaked at around 28,000 per year in 1991 (with a market share of almost 2%). Although the model showed
potential in a specific niche market (Mitsubishi clearly focused on a price strategy for this product) for the midsize van market Mitsubishi Motors decided to end production for Europe in 1995. Currently the L300 is being phased out, which means that the existing stock of L300s is being sold and no successor is planned. This resulted in total L300 in 2002 were under 3,000. In Europe (a market share of 0.3%). The main motive is assumed to be based on fluctuations of local exchange rates between the Yen and the European main land.
Source: Mitsubishi Motors
Germany Turkey
Switzerland
Sweden
Spain
Norway Portugal
Netherlands Ireland
Hungary Denmark UK
Aus tria
Others Belgium
Furthermore the fact that it was impossible to fit a pallet in the back led to the downfall of the L300 in Europe.
Strength: The Mitsubishi L300 was known for the value for money for a reasonable quality
Weakness: Its small size, focused on Japanese design, made it impossible to move the standard European pallets. This has become a standard in professional transportation and therefore it was a real weakness. Also the diesel engine, with its limited torque power, in the market of today would be a clear weakness.
Source: Jato Dynamics
2.7 Organizational Capabilities and Constraints: The end of the Alliance
MMC is one of the 25 core members of the Mitsubishi keiretsu. The keiretsu, a unique form of business organization that links companies together in industrial groups, may be providing Japanese business with a substantial competitive edge over non-keiretsu organizations but it also can cause problems when taken part in an international alliance. Keiretsu are
descended from the traditional ziabatsus, huge industrial conglomerates that virtually controlled the Japanese economy before World War II. Four of the largest zaibatsus, Mitsubishi, Mitsui, Sumitomo and Yasuda, accounted for about a quarter of all Japanese industrial assets36. Zaibatsus were outlawed after World War II and keiretsus emerged as a variation. There are three types of keiretsus37: financial; sales-distribution and production.
MMC is a member of the production keiretsu. The production, or vertical, keiretsu is a web of interlocking, long-term relationships between a big manufacturer and its main suppliers.
Vertical keiretsus are typically found in the automotive industry and consist of vertically integrated systems, from the manufacturer to suppliers.
36 Rugman, A.M., and Hodgetts, R.M. (2000), p.267
37 Cateora, P.R., and Ghauri, P.N. (2000), p.496
This vertical integrated system is based on the pluralistic concept of corporate governance.
Three groups of cooperation can be identified38: monistic, dualistic and pluralistic concepts.
The monistic approach is purely focused on the shareholder, with a company the private property of its owners. This kind of governance is mostly seen in the United States and the UK. The dualistic approach is prevalent in Germany.
The central characteristic of the Japanese pluralistic concept versus the German dualistic concept can be seen as one of the key point that led to the end of the alliance. The pluralistic concept applied by Japanese companies is focused on the alignment of the company’s goals and interests with those of all the stakeholders, especially the employer39. The concept aims at long-term employment for employees and long-term trading relations among various other stakeholders, loosely called a keiretsu organisation. This leads to a higher degree of
cohesion between the firm’s stakeholders, i.e. shareholders, management, employees, the main bank, major suppliers and distributors. They pull together toward a common purpose:
the company’s survival and prosperity. They share the implicit consensus that their respective interests are realized and promoted through their long-term commitment and cooperation with the firm. Maximization of general benefit, or the firm’s wealth maximizing capacity, and not self-interest, is the primary objective.
In contrast, the German dualistic concept also puts a premium on the shareholders interest.
The company is a tool, which enables to satisfy the self-centred need of the different shareholders. MMC, which seemed to have successfully implemented a turnaround plan in 2001 still had problems to stay competitive and was faced with a heavy downfall of sales in the American and the Asian market in 2003 and especially the first quarter of 2004. Again a capital injection was much needed to revitalise the turnaround process. It was expected that DC, as the majority shareholder would again provide the financing. This time, under the dualistic concept where shareholders’ interests are given primacy and the CEO represents the interests of the shareholders, DC was no longer willing to provide a helping hand. In alignment with the dualistic approach, once a company is confronted with financial difficulties the willingness to invest in a turnaround process is more difficult40. Apart from the problems with MMC, DC also had to cope with the declining sales of its counterpart Chrysler in the American market. As an expected result, mid 2004 the alliance collapsed when DC decided to pull out of the Alliance, not willing to provide the much-needed financial injection. This was followed by the resignation of German Rolf Eckrodt, appointed by DC as President/ CEO of MMC. It is expected that DC will sell most of its majority share on the short term. Since then it has been reduced to 20%.
38 Wit, B. de, and Meyer, R. (2002), p.383
39 Wit, B. de, and Meyer, R. (2002), p.841
40 Abbglen, J., and Stalk, G. (1985), p.840
2.8 Financial results
Over the last three years Mitsubishi Motors has seen a serious downfall in the domestic and home sales. Sales in the main markets, Japan and North America has fallen dramatically in 2003. Figure X shows an even more dramatic picture of declining sales, with MMC still losing market share in all major markets. Only Europe, being just a minority market, has been able to be profitable in 2003, even showing some growth in a consolidated market. Due to several large scale product recalls in 2000 and 2002 Mitsubishi’s brand name has been seriously dented and this is also reflected in the declining sales.
The biggest problem is uncertain situation in the US. The company has extensive US financial assets and it is expected that these will generate loan losses for the company. The finance unit saw operating losses broaden from the year earlier level of Y2.2 billion to Y8.2 billion41 due to higher than expected uncollectible provisioning in the segment’s US operations. It has been said that the former company’s increase in US sales can be attributed to increased emphasis on younger consumers and widening the credit extension framework to include providing loans to borrowers with low credit ratings. Therefore, although sales have increased, defaults on loans that support these sales have increased, defaults on loans that support these sales have ballooned, negating any increased earnings.
Another aspect which has had major influence on the financial situation of Mitsubishi Motors is the tragic history of road accidents in Japan. Mitsubishi Motors had to recall several cars makes recently. Also the Fuso Truck wheel accident, which resulted in the death of a pedestrian has dented the brand image in Japan. As a result Mitsubishi Motors had to invest heavily to regain the consumers trust.
41 Mitsubishi Motors Corporation (2004), Turnaround Plan
Financial Quarter 2004/ Q1 Net Sales Source: Mitsubishi Motors Corporation (2004)
2.9 Conclusion
In the Japanese Keiretsu the main bank assumes an important role owing to its monitoring and disciplinary function based on its financial and equity claims. This can also be seen with the MMC case. With DC’s announcement to cease further financial support three Mitsubishi Group companies; Mitsubishi Heavy Industries, Mitsubishi Corporation and The Bank of Tokyo-Mitsubishi, stepped up and announced to continue to support all activities of MMC.
They have established a 40-member revitalization team, which has started drawing up a new Revitalization Plan. This Revitalization Plan will focus on cost reduction, aiming at the transformation of the fixed costs, headcount reduction and a drastic reduction of material costs which covers a significant portion of the variable costs. Also the production capacity will be reduced due to lower export to the North American market and the domestic sales. This will be realised with the closure of the Australian plant and the reduction of the production platforms. It is clear that Mitsubishi Motors has responded with an aggressive restructuring plan. But where Mitsubishi Motors is not changing is for the selection of the composition of its board and revitalization team. These managers have all come from Mitsubishi Motors or other parts of the Mitsubishi Group. It can be argued that Mitsubishi should try to benefit from completely fresh blood, what happened to Nissan when Renault stepped in to take over control.
Chapter 3. Macro Analysis of the Automotive Industry in Europe
3.1 Introduction
This chapter will deal with the second research question, which is focused on the external environment, on a macro-economic level:
What are the opportunities and threats in the Light Commercial Vehicle market?
Its external environment influences an organization’s effectiveness, which is the major force outside the organization that may potentially impact the success of the organization. The external environment consists of broad conditions and trends within which Mitsubishi Motors functions. To get an overview of the nature of the market concerning the LCV segment a PEST analysis will be used. The PEST analysis evaluates the macro environment, which consist of elements that influence the automotive industry and the relevant stakeholders. It is essential, for the formulation of alternative strategies, that an in-depth analysis is performed.
The Political, Economical, Social Cultural and Technological Dimensions, which closely interact with each other, are useful to be identified. Each of these dimensions will be discussed in the following paragraph.
3.2 The Political and Economical Dimension
Road transport is an excellent indicator of the health of trade and industry. Any slow-down in the economy has an immediate repercussion on transport. Less trade, naturally, means that fewer goods need to be transported. As a result, companies wait for more favourable times to renew or extend their fleets, which in turn translate into fewer registered commercial vehicles. So it is no secret that the commercial vehicle sector, too, shares the economic slump of recent months. Consumer and management confidence has been less than average, although there seems to have been a slight recovery.
The West European economic recovery seems to be getting slowly under way in the second half of 2004, although it is still struggling to gain momentum. The European Union (EU) growth of 0.4% quarter on quarter in the fourth quarter of last year (according to Euro stat’s estimate) matched the third-quarter performance. Prior to this, the EU Growth Domestic Product (GDP) was flat in both the second and first quarters of last year. Consequently, the EU GDP growth was just 0.7% in 2004, down from 1.1% in 2003.
