Name Sabyasachi Dey Subject Macroeconomic Theory and Policy

Roll Number G22034 Assignment Assignment 4 - Individual

Japan’s Automakers Face Endaka

1. Case Background

The case illustrates the landscape of Japanese automotive during the 1980s and
1990s. The appreciation of the Japanese currency Yen, the factors leading to the
increase, and the impact it had on the Japanese automobile industry as well as the
overall economy of Japan have been explained. Due to the endaka, the whole of the
Japanese economy saw changes in tradition and practices across the industry. This
also brings to from the differences in the American and the Japanese economy and
practices as a whole.
In relation to the US dollar, the Japanese yen was expensive in the middle of the
1980s. Because of their very high productivity and consistency, the Japanese
automakers
Wanted environmentally friendly autos prior to the 1973 and 1979 international oil
shocks. However, Japanese consumers' willingness to spend less and the overall
economy was in a slump. The USA's import/export imbalance was sparked by it, and
high. Since Japan sent autos to the USA, an unusual amount of wealth has flowed in.
unemployment rates expanded in the United States in the fields of engine vehicles,
steel, and materials the strong. As a result of the dollar's exchange lopsidedness,
liberals and conservatives worked together to ask for it the US government to take
action to weaken the dollar's value.

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Name Sabyasachi Dey Subject Macroeconomic Theory and Policy
Roll Number G22034 Assignment Assignment 4 - Individual

2. Critical issues and challenges

A. High-Interest Rate in the US

During the Reagan Government in the United States of America, during the early
1980s, the country saw high-interest rates. This was done to keep inflation under
check. With the interest rate kept high, the value of the US dollar grew
significantly. The newly strengthening US dollar became very lucrative for foreign
investment. With the rise of the value of the US dollar amount of foreign
investment in the United States of America increased considerably.
B. Japan Automobile Industry’s dependence on export

58% of the total production sales for the Japanese Automobile sector was exported
to foreign countries like the United States of America, Europe, etc. Thus, Japanese
Automobile industry was very heavily dependent on the export market. This was
because of technological advancement, the fewer number of people that were
needed to produce cars, and the less turnaround time in the car production process.
dependent. This made them thrive in the export market. With a high Yen to the
dollar exchange rate, this competitive advantage made the export of Japanese
automobiles to foreign countries extremely lucrative. With the Plaza accord and
the subsequent government action in terms of monetary policies and export
policies, the declining difference between the yen and dollar with the Yen
strengthening significantly led the Japanese Automobile companies to lose their
competitive advantage in terms of the exchange rate.
C. Resistance to outsourcing and production reduction

Japanese have a culture of long-term commitment in terms of employment and

national commitment. Putting the business first before the country would be taken
as disloyalty. There was a lot of social and political pressure on the Japanese
automobile companies in regard of this issue. Thus, this restricted the flexibility of
the Japanese Automobile companies in terms of the strategies they could be
undertaking to cut their losses. This restricted them from outsourcing or reducing
production at the plants in Japan as that out need significant reduction in the
workforce going against the social and political expectation out of them.

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Name Sabyasachi Dey Subject Macroeconomic Theory and Policy
Roll Number G22034 Assignment Assignment 4 - Individual

3. Case Analysis and Interpretation

After the first Endaka disaster in 1985, Japan's automobile industry underwent the
most dramatic change in its history. The fourth-largest Japanese automakers in this
case took some crucial actions to maintain their presence in the American markets.
Second, they began by lowering prices taking measures to reduce their overall value
of production to account for the price increase brought on by the acceptance of the
yen. They have confidence in using various sources to take advantage of the
increasing yen.
Lower prices by sourcing inputs from worldwide markets rather than Japanese
markets. The relocation of their production equipment from Japan to the United
States and other countries in order to mitigate the change.
They have also expanded their awareness beyond a particular low-end customer
niche. By include high-risk clients who are interested in buying cars, several market
segments may be created.
They have increased their prices to take into consideration the negative effects of
the stronger yen. in spite of yen appreciation. because of their appreciation, eastern
producers were immune to rising costs. competitiveness among American
businesses. The increase in automobile fees in the US between 1984 and 1994 can
be found to be 12% and 11% better than that of Japanese manufacturers,
respectively. The overall uptick in Japanese factories' sales, the rising returns, and
the assertive behaviour of Eastern Automakers, as well as the growing production of
transplants in the United States, may be assessed using help from the effective
management.
All four of Japan's largest automakers, whose revenues fluctuated between 1985 and
1994, were able to sustain a median increase in positive revenue, with Toyota,
Nissan, Mazda, and Honda receiving the highest percentages An increase in income
of 17%, 2%, 1%, and 7%, respectively.
In conclusion, it may be said that while eastern automakers' total yield remained.
Despite doing poorly in comparison to American manufacturers between 1985 and
1988, they were able to resurrect. Eastern automakers had higher results and
average returns than the United States from 1988 to 1994.
In order to increase inventory tiers in the face of rising costs, Japan's Big 4
supported their most popular vehicles with a variety of modern advertisements and
promotional strategies.
Despite ongoing pressure on sales, marketing spending had remained steady.
Similar to this, Japanese companies were forced to make changes, such as
producing and implementing cutting-edge technologies across their whole auto

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Name Sabyasachi Dey Subject Macroeconomic Theory and Policy
Roll Number G22034 Assignment Assignment 4 - Individual

industry. Businesses have relocated their manufacturing offshore to avoid the

logistical challenges of shipping completed goods to dissatisfied customers. In
contrast, businesses held back a percentage of their production expenses, which
resulted in healthy margins and provided them the flexibility to maintain
competitive prices in the global automobile sector.
Lastly, Japanese businesses and the government examined their roles.
In contrast, the first Endaka round encouraged Japanese automakers to invest right
away in the U.S. and European markets, whereas the second Endaka round
encouraged them to invest in Asia instead. This wave was led by the automakers,
who had spotted unique sights in the vast, low-wage, and untrapped market of Asia.
At some point during that time, all four of Japan's key industries bargained to
combine or create larger production facilities and services.

4. Justification of Macroeconomic tools

The groups started to supply directly in the less expensive U.S. market rather than
sending from the excellent satisfying projected eastern market. As a result, during the
course of eight years, the percentage of Japanese companies operating in the United
States roughly doubled. This was the premium transmission both to Japanese
businesses and to American consumers. For instance, around 26,000 U.S. workers
have applied, while offers for Japanese automobile manufacturing have increased by
about three times. The Japanese manufacturers clearly understood that they were not
just constrained by the purposeful regulations and high yen, but also by intense
competition from East Europe and Korea. They had to move quickly in order to carry
out the adjustment of their portfolio. Some businesses and manufacturers wanted to
expand their production facilities abroad or work in new business sectors. Large and
improved corporations had leveraged declining domestic requests, low mortgage
rates, flow to cutwork, and restricted charges to keep advantage edges, giving them
the flexibility to have the option to perform as such. Large firms with presentations to
unfamiliar audiences or with worldwide auxiliary had the option of responding more
favourably to the Endaka outcomes.
Operational support, the ability to retain their workforce, and joint domestic and
international arrangements approved them to assist through the first Endaka.
However, smaller businesses attempted to maintain operations in light of declining
domestic interest by keeping labour and material costs low, leading to a considerable
number of them going out of business.
1995 turned into a unique year as political stress grew to maintain domestic creation
stages and uphold lifelong business obligations.

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Name Sabyasachi Dey Subject Macroeconomic Theory and Policy
Roll Number G22034 Assignment Assignment 4 - Individual

Companies that made donations abroad had been criticised for their intrigue and
clinging to inappropriate interests. Moving out of Japan was no longer a viable option
in 1995, when unemployment rates had reached record lows. Businesses had to
operate within Japan; in order to avoid giving up a piece of the pie, they created
problems. Changes had to be made in the areas of business and government
alternative strategies as a result of these circumstances. The alternative methods
required aiding import strategies for raw materials, technological devices, and so
forth while moving forward with the aid of fare objects.

5. Learnings the case

We learn from the case that the exchange rates have to be properly evaluated to make
major decisions. Outsourcing or transplanting can be an option to reduce the cost
when the exchange rates are favourable.
This suggests that while their country is through a slump, organisations should be
more aware of prices and introduction in countries with more stable economies. Any
further training will teach you that improving will lessen the effect of danger.
The impact of risk could not be that significant in the event that demand for some
items declines while demand for other products remains stable.
When other low-end producers began to compete heavily with Japan, Japanese
businesses started producing greater portion edges. Businesses meant to also consider
shifting their products to untapped market segments. Japan's manufacturers decided
to invest in Asia after seeing the region's potential incredible, underpaid, and
untapped business areas. When competition is fierce, businesses should develop
market innovations.