In the New York Plaza hotel there was a meeting of finance ministers of the world’s largest economies namely West Germany, Britain, U.S and japan in September 1985, their main discussion was on the development of the dollar in relation to the yen. In the early 1980’s the strengthening of the dollar which led to the U.S trade having a deficit that was closely followed by a strong foreign capital inflow,protectionists theories started to develop in both democratic and republican camps and it was evident that both parties shared a common interest in addressing the increase of the dollar value in relation to the yen as this meant an elimination of the Japan/U.S. trade lessening and unbalancing the protectionists demands. This recommended solution was to suit all the concerned parties since it would result finally in higher exports for all the countries including Japan. To achieve this there was an agreement between the countries to conduct a coordinated intervention within their respective exchange foreign markets. In the case of the Japanese government it is stated that the very next day they exchanged for their yen 3 million dollars in the Tokyo and New York markets. This embrace of the policy changes by the G-5, this meant they intentionally, abandoned their initial market driven exchange rates guiding principles led to the high yen or endaka phenomenon. A post world war II high was reached by the yen against the U.S dollar in 1995 and this ushered the Japan into the super endeka period. In the short run endeka effects were evident on the firms that dealt with exporting and huge losses were incurred on those firms that did not manage to sell the dollars, however in the long term effects it was viewed as favorable to Japan since it was viewed to increase the purchasing parity (Koo, R 1995).
There were severe effects on the Japanese auto manufactures due to the endaka, like with the high increase of the dollar price of their cars led to the drop of their competitiveness,and with the endaka advent still being evident there was a high probability of them being eliminated in the global competition due to the cost advantage. There was also uproar from the Japanese citizens who for a lifetime honored the company as tradition of lifetime employment but due to the imbalance unemployment rate shot up by 3 percent this caused many companies to down size while others allowed for profit loss rather than complete closure of their factories (NikkanJidosha Shinbunsha,1994).
Japanese companies implemented more raised and strict prices as a way of pressuring for cheaper components from their suppliers. However, these companies started heavy marketing and advertising campaigns to detract from their increased prices and also attract more customers. With no or little profit, it became a necessity to sell their cars in high quantities to maintain any efficiency in their production. The first wave precipitated the production facilities move mainly to the U.S.Endoka’s second wave in Japan also forced other automakers to rethink their production locations which saw the beginning of the Japan automakers investment in markets that offered more cheaper productions like Asia.
The main reason for the occurrence of endaka in japan was mainly because of the interplay caused by the divergent fundamentals in the economy like Japans rise as a manufacturing and economic super power,the deficits and trade surplus that accompanied importers or net exporters,the debt burdened and consumption economy of the U.S and the leadership policies of the specific countries this is in relation to the terms of global trade restrictions and currency interventions (Harvard Business Review,1996).
In 1985 Japan’sresponse to the changes in the market that subsequently led to their auto motor manufacturers profit margins decline on their exports included enacting effective reforms within the government that would address the economy issue. These included steps like giving less emphasis on economic aspects like exports, which was contrary to what was done in the past, this strategy though logical was obviously going to have radical effects on the companies that exported as seen by the fact that by 1985, Japan’s net exports comprised 3.5 percent of the countries GNP, which made the country be the most trade dependent globally. The fact that the carmakers found it hard to make any profits from the cost advantages due to the technical and labor differences during the endaka was sorted out by their reaction mainly on the implementing and enacting appropriate tools combination like moving abroad most of their manufacturing facilities, cost cutting which also led to labor cut backs, diversification and raising price of their products, these implemented strategies saw them get a net return of 2.4 percent, which however favored the U.S auto companies since they reported a 4.1 percent benefit on their net returns.
Some of the things they had to do differently include implementing changes like managing and shaping more complex strategies for the automakers. They can also expand and build production plants near their main markets in order to increase their client base and be more dominant in the regions market. They can focus on finding and providing sources for cheaper parts and labor abroad as a means of effectively nurturing new business in the regions while subsequently keeping pace with the competition from the more industrialized countries. The Japan manufacturers and government may have to embrace foreign reform measures which they often hold in contempt.
The main lessons other automobile manufacturers can pick from the endaka case study include them getting the significance of implementing significant restructuring on their domestic business mainly in their entire systems and business content, establishing an international strategy mainly through formingglobal networks for business bases and overseas production and strength their overseas production base in relation to other countries. However before they could effectively implement the Japanese global business plan and the domestic business plan which often workhand-in-hand they have to understand the origins of the concepts in order to be able to implement them effectively. Domestic restructuring basically stemmed from the domestic recession caused by the bubble economy, while the evolution of global restructuring is from increased trade frictions, caused by car exports radical increase. The above explanation in context relates by reviewing the currently increase of the yen which has made Japan exports to be decline due to the fact that they are expensive and now with implementing the domestic restructuring will consequently strengthen the competitiveness of the Japanese products globally while also helping in directly cutting down the costs to help the automakers break even on the profits (ShachmuroweY, 1997).
Other auto makers can also benefit by implementing strategies like increasing their overseas manufacturingas a way of helping to boost their profit and export ratio which will help give them the best prices since the manufacturing will be cost effective as compared to it being done locally. This can be done through the emphasis of benefiting from the ratio of operational plants increase in relation to their current techniques of stressing on lean production rather than risk investments that are large scale, since facts like possibility of recession and market maturity don’t have to be considered. As a result most of the Japanese car-manufacturers have shifted to regions like Asia, by implementing such strategies they can be cushioned in case of any eventualities occur (Koichi Shimokawa 1994).
Another critical lesson from the case study would include the fact that it is better if manufacturing companies would have already professional advice before they would decide to implement any drastic changes, in that they would have counter measures ready so as to avoid the inconvenience and large scale effects as seen in the case study.