5IB005 Contemporary issues in IBM Assignment Sample 2023
Introduction
Emerging as a motorcycle manufacture in 1946, Honda has become one of the leading automobiles manufacturer across the world. The company is headquartered at Tokyo, Japan along with numerous branches across 150 nations (Encyclopaedia Britannica, 2021). The company has been a successful business over the last 73 years with positive recommendations on its deliveries. Around 6 million products are annually manufactured including regular and advanced engines (Encyclopaedia Britannica, 2021). The company is also the first luxury car manufacturer in the industry. However, it must be mentioned that the overall automobile industry of Japan and the world has undergone tremendous changes over the last few years. The global pandemic has been a major contributor to this change which have compelled severe alterations in production and supply chains. The study would therefore attempt to discuss the current trends in global cash flows and investments while highlighting the concerns born of the pandemic. Feasible recommendations would be suggested with theoretical justifications.
Recent Trends in Global FDI
Findings from the World Investment Report, 2020
Overall Global Outflows
Experts have reported an expected severity in the foreign direct investment flows globally. Owing to the Covid-19 implications, important resources would undergo a sharp decline from 2019 recordings due to financial crises. A significant trend is to be noted in the inclusion of sustainable development goals among all industries during this period. Also, the 2020 WIR highlights important technological trends rising due to intense digitisation. This include robotics, automation and AI, enhanced supply chains in 3D printing (Unctad.org, 2021). Improvement in regional, ad hoc economics and bilateral cooperation would also be noted globally besides sustainable supply chaining.
Developed Countries
Analysing the World Investment Report, 2020, a rapid fall in MNE expenses can be expected post the pandemic. An estimated 500 billion dollars decline has been noted with 53 percent reduction in the monthly average mergers and acquisitions (Unctad.org, 2021). Along with reduced inflows, outflows are also falling by 35 percent. Among the developed countries, Japan still has positive inflows of about 58.3 percent while that in the US is -2.9 percent in 2020. Similarly, the UK is seeing a decline of 9.4 percent in inflows annually. Comparing the statistics to that of 2019, about 50 percent of earnings have been lost from the French MNEs. As a result, almost half of the FDI outflows face severe pressure, the concentration being on the foreign affiliates.
Developing Countries
The 2020 report has divided the developing economies into three regions: the African, Asian and South American continents. Assessing the trends in Africa, a total of 10.3 percent fall is being observed in the inflows (World Bank, 2020). Similarly, the outflow is reduced by 35 percent to only 5.3 billion dollars. Important prospects like the oil market have been limited by the price falls which further reduce FDIs. The Asian continents are facing a loss of 19 percent in the FDI outflows with a 52 percent drop on mergers and acquisitions (World Bank, 2020). However, South American continents see a rise in outflows with 42 billion dollars of outward investments. Prospects of tourism and hospitality have been shattered.
Transitional Countries
Analysing the report on 5 host nations, the WIR has reported a decline of nearly 38 percent in the FDI inflows. Economic recession due to the pandemic has impacted direct marketing largely. Reduction of oil prices has been an addition to this problem. Greenfield projects were already facing a fall which has worsened currently. Almost 24 billion dollars of FDI outflows have been lost in 2020 (World Bank, 2020). Comparing the outward statistics of Russian federation in 2019, the 95 percent has seen a sharp contrast. However, investment in new markets has compensated the losses to some extent such as the UAE partnerships.
Two notable Trends and their Influential Factors
Several trending considerations have been noted in the WIR 2020. Technological advancement along with fiscal policy changes tend to be vital to strengthen the internal monetary flows. Even a rising focus on the SDGs can be noted for secularising changes at all aspects of international production. The report elaborates these three themes as the prospects for all-around development. However, two of the most notable Trends have to be discussed in this respect:
Technological Trends and the NIR:
Critics have observed the dominance of three technical progressions in almost all economies: AI featuring and Robotics, digitisation and additive manufacturing via 3D printing. The impact of these elements would vary according to geographical and governance distributions. However, the Industry 4.0 would cover several megatrends under these conceptions.
- White-collar robotics and AI augmentation along with mass customisation of products
- Enhancement of digital platforms as well as of the IoT and blockchains (Unctad.org, 2021)
- Cloud computing and niche-based manufacturing.
The notable criteria influencing these tendencies would include several external supplies. For example, the additive manufacturing would solely rely on rubber and plastic availability for 3D printing. The demand from mainstream industries like food, textiles and pharmaceuticals would highly affect the marketing and potential growth in production. Apart from this, growth of robotic labour would be affecting human labour as technical staffing would rise immensely by 2025 (Attaran, 2020, July). It has been estimated that about 10 times growth can be expected at the current rate in the technological field. Stocks of industrial robots would also rise from 1.3 to 4 billion by 2022 (Attaran, 2020, July). Therefore, a large portion of the practices would rely on the skills employed in every industry. Capital investments would also affect the growth as funds are limited due to recessive crises.
Data technologies would be highly dependent on the big data service contents. The IoT facilities would also develop to produce more efficient products in the market. Not only that, an advanced ICT would make it easier to generate supplies for additive manufacturing. Virtual and augmented reality would be influenced by the consistency of teleconferencing mechanisms as physical interactions have become limited in several sectors. Likewise, binary trends like near-shoring and insourcing of jobs would affect the quality and standard of outputs (Cherunilam, 2020). Therefore, investments would also be required in infrastructural development. Automation services would be dependent on aftersales standards.
Sustainability Trends determining International Production:
All levels of the global MNEs have been facing the concerns of social and ecological implications due to international operations. The GVCs have marked the rise of pressure from civil organisations and regulations which included timely ESG reporting on social and ecological conditions. Consequently, trading blocs and major constituencies are adopting new green policies that aim to alter the mechanism of global production and service allotments. Even courts are taking strict actions to ensure proper supervision and verification of the MNEs and their CSR impacts. Assessing the history of the corporate responsibility policies, it is understood that several areas have been addressed and principles have been issued for rising causes of concerns. However, it was until the launch of SDGs in 2015 that a strict action plan and charter was established for the MNEs to undertake. Climate change policies would depend greatly on the regional assessment of carbon emissions. Setting a carbon border and its adjustment according to the improvements or deteriorations would require active participation of the government as well as the individual organisations. The most vital factor affecting SDG implementation is the financial condition of the country. The EU, for example, has initiated a net investment of 7 billion dollars on the production of electric and fuel-efficient vehicles (Yaqoob et al., 2021). These would utilise alternative energy sources like solar energy to charge batteries which is a mandatory target considering the pollution levels. Improvement of climate conditions would also enhance trade possibilities. Another factor affect the SDGs is the retention of the policies. In case of crises, it would be easier to take the assistance of collaborations from other organisations that are manufacturing the units locally. These might exist outside the country. Consequently, the trade opportunities would also evolve, helping both the countries in diplomacy. The uneven distribution of climatic conditions in the developing and under developed economies can also be bridged.
Impact of Global Pandemic on Japanese Automobiles Sector
The sudden emergence of Sara Covid-19 towards the ending of 2019 and its rapid spread in the first three months of 2020 has taken an adverse toll on normal functioning. Considering the infectious nature and its mortality rates, the disease had compelled nations to stop complete transportation and translocation of individuals, goods and services even between localities. The immediate impacts have been noted on the tourism and transportation sectors where a large portion of revenues were contributed from international movements. However, even other industries have been equally damaged in terms of finance and client accommodations. A sudden transition from outsourcing to in shoring and rebundling has been observed in all nations of which Japan is also a part. The overall car industry of Japan includes several small and large companies. Brands like Honda, Toyota, Datsun, Suzuki and others have direct branches or collaborative units at different parts of the world. The stagnation of global interactions due to the pandemic has affected both the sales and supplies of automotive units in Japan.
Analysing the global statistics, car and vehicular sales have been noted to decline by 20 percent (approximately at 71 million units) during August 2020. At a national level, the market of Japan has marked a downfall of 16 percent in sales, standing at only 3,26,000 units. Experts have been suggested that the resignation of the PM could impose further decline in the market owing to new governance setup during this time. The issues have been noted to remain more pronounced for traditional cars with limited technological advancements. Digital features connecting cars to tracking features have gained importance owing to the lack of people’s presence on roads. Several in-vehicle provisions have come to the light such as lane departure warnings (LDWs), automated emergency brakes, surrounding cameras and head up displays (Astorsson and van Sommeren, 2019). Automated transmissions and controls are gaining popularity in the age due to their reliability and efficiency in delivering point-to-point transport. Now, companies like Honda have been focused on delivering new-age fuel efficient vehicles with inclusions like alternative energy fuelling, battery powered engines and accessories. The addition of these features only add to the competition as brands must possess relevant skills to incorporate and maintain these services without failure.
Weak car sales have also affected Honda’s yearly revenues. In a recent publishing, the company has presented a downfall of 68 percent in annual profits (Business Today, 2021). The cause is the reduction of sales which amounts to 113.7 billion yen between April and June 2020 (Business Today, 2021). Not only that, from being a leading brand the company has become the third seller at local and global levels. Authorities had also predicted a loss of around 200 billion yen by March end in 2021. One of the key factors affecting the sales trajectory has been the lack of abundant income during the Covid-19. While unemployment rates across Japan had been steadied to 2.4 percent since 2018, the percentage rose to 2.97 in 2020. As per Recalde et al., (2019), the OECD reports the average household disposable income per capita is a net of 29,798 per year. The value is far lesser than the average of 33,604 annually. This proves the larger difference and deterioration that the pandemic generated in overall income of the public. Similar situations can be traced at an international level. The developed economies like the US have faced a severe loss in the percentage disposable income per capita. For example, the US has recorded a 1.3 percent decrease (Statista, 2021). Even the difference between the topmost and bottommost income ranges of the UK is high, 10,884 and 127.778 British Pounds respectively (Statista, 2021). The global unemployment figures have been raised from 187.3 million to 220.3 billion between 2019 and 2020 (Statista, 2021). Critics have acclaimed it as the greatest increase in unemployment annually. The numbers have undergone slight increase to 220.5 million this year (Statista, 2021). All these facts clearly indicate the loss of huge amount of salaries and incentives which summed to be investments in cars, vacations, residences and several extravaganzas.
One of the most important areas that have been affected in terms of car production and manufacturing is the supply chain. On one hand, new digital and technological features have been launching for inclusion in the automotive sector. On the other end, manufacturing areas are limited to technically advanced regions like China and the US. Transportation and deliveries have already been closed during the pandemic. As a result, regular supply of materials for assembling or real-time manufacturing have been limited. Akio Toyoda, the leader among the Japanese automakers and the head of the auto industrial lobby, has recently declared that manufacturers are able to produce new products in the market owing to supply limitations and lack of component parts locally (Reuters, 2021). A severe production cut has also been generated due to the pandemic which has slowed the output of not only Toyota but also of other car sellers and distributors. Automatically, this has affected the sales regionally as well as internationally. As opined by Buciuni and Pisano (2021), several OEMs and dealers have attempted to take steps to develop local supply and value chains. However, the scopes have been limited to financial stagnation and absence of cash flows for a long time in 2020. However, Japan, being a technologically advanced location, has the prospect of establishing new supply units (Reuters, 2021). Autonomous driving units could be developed within the locality but that would also be a time-consuming process. This is because of the lack of space as well as funds to invest in building new manufacturing areas for individual companies. At an international level, Honda has individually planned to generate Voluntary Retirement Schemes (VRS) for the employees based in global centres (Business Standard, 2021). This is because a large population in host economies depend on the sales and services at Honda’s centres. Countries like India have already been facing the crises of new employment in the market (Business Standard, 2021). Therefore, a future security is mandatory to ensure some balance. Now, funding such projects also requires additional expenditures which have risen due to Covid-19. Even health insurances have to be revisited at all locations to ensure timely distribution of assistance to the needy.
A long-term impact is also notable in the Japanese car industry. This is because technological advancements have been accommodated by the western sellers with much ease. This is because these brands have faced comparatively lesser losses during the pandemic or have stabilised their finances in the developed world by 2021. The international scenario has become more competitive after the epidemic. The growth of electric vehicles in Europe, China and the US puts Japanese market to greater threats. Even tax rebate schemes are to be imposed which would generate a natural inclination towards local production among buyers. For instance, the Chinese government has planned to reduce New Energy Vehicle incentives by 20 percent (Automotive World, 2021). These factors would impose a market risk in terms of competition and rivalry. Apart from these, modern buyers are tending to prefer local manufacturers over foreign brands currently. Consequently, the competitive threats would also keep increasing.
Congestion Theory
The idea of this theory is to locate the patterns of mass flow which leads to congestions in certain sectors. As per Tcherneva (2020), an abundance of new recruitment in certain fields has led to congestion of seats. Applicants losing jobs in the midst of 2020 and ongoing pandemic had to develop new ways to earn and sustain living standards (Tcherneva, 2020). However, this transition does not meet the financial expectancy often. As a result, a massive slackening in expenditures is noted. Unemployment fluctuations are best described using this theory. However, it cannot establish a direct relation with implications on dependent industries like the automotive sector.
Recommendations to Minimise Problems
Acknowledging the problems and their severity is the first step to sort the problems identified above. Limitations of supplies, lack of inventory sales and rising localisation of sales need effective remodelling of action policies. Companies like Honda and other Japanese automakers can make use of the following recommendations to minimise the losses incurred previously:
Expanding Car Recalls
A modern concept, the US automakers have employed this idea for the last 20 years to generate a loyal market (Automotive World, 2021). Consequently, the service consistency before and after sales is a determinant to evolve such standards.
Shifting to precautionary installations
Securing precautionary installations like spare cameras and gear systems can help to avail them in time in case of failures (Cherunilam, 2020). It can be a new policy to develop buyers currently.
Inclusion of new short-term strategies
Mending long-term schemes would require developing short-term policies that help to continue sales. For example, switching to other component suppliers for a short span to meet demands on chip development can enable to sustain in the trending market (Automotive World, 2021). This can also be done by licensing contracts to secure IP rights.
Modifications in Business Models
Companies like Honda would need to evolve new business patterns to deal with clients. Competitive advantages are best attained using content marketing and social media presence (Li et al., 2021). These must also involve transitioning work structures to allow creative inputs from the manufacturers also. A participating mentality can help to sort problems and handle crises with new critical insights from the workers.
The New Trade Theory
A traditional concept, this theory focuses on aligning facilities that can help to return scaling and networking in an industry (Król, 2019). It is a combination of several econometric parameters like expenses, ROIs, profits, scalability of the resources, etc which affect the net growth of production. Considering the above discussed recommendations, the ideas are focused on regeneration of sales and marketing in the new normal setting. Although the challenge of competition is much more enhanced, the execution of these suggestions does not involve huge expenses. Another added advantage is the internal transitioning which can help to sort complexities.
Conclusion
Based on this study, the following points can be identified. First of all, the trends identified from the WIR 2020 distinctly reflect on the impact of global pandemic on larger communities. For example, the rise of technological value is an indication of several transitions that might take place in near future. Digitisation is an ongoing transition and evolution which has been gaining importance daily. The study has elaborated two of the thematic trends identified in the report. The problems of global pandemic despite the technological evolution in global businesses have also been indicated here which justifies the need for alterations.
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