Juan Sebastin Velandia Oscar Salamanca Charlotte Cancoin Daniel Cabrera Universidad del Rosario Facultad de Administracin

Bloomberg Nissan Plans $2 Billion Plant in Mexico to Avoid Losses From Yen

1. Why Mexico? The Latin-American country has lived a boosted dev elopement by external investment and localbusiness growth. Nowadays, Mexico is considered as one of the prospect countries looking for investments and high profitability. In order to achieve higher values in production factors and spread around the Americas, Mexico appears as one of the gates to entry in a potential market for Nissan and general cars producer companies. The easy access which Mexico has due to its geographical location, market agreements and economy features, make the country an exceptional ally in region. Nissan already knows Mexican behaviour in business and production, the new plant will prove how much is Mexico ready to face an increasing wild and desperate competence.

2. Why is it important for Renault / Nissan the alliance? Facing the increasing competence which is arriving from everywhere to Latin- America, the new alliance between Nissan and Renault, will try to built a strong block of two huge car producers, which will endeavour to preserve the top of market sales in Mexico against Volkswagen and General Motors, and focused in the new plant, make arise an empowered alliance in region, that will bring investment, employment and reliability to a former forgotten market as Latin America was.

3. Criteria 1: Market potential: Mexico has a good market potential. Nissan has the capacity to increase sales volume and market share across the Americas. First of all, the company has been Mexicos top seller of cars and light trucks in the past 3 years, beating out General Motors Co and Volkswagen. Second of all, the position of the Mexican currency and the Japanese currency encourage the market. Yens strength is driving the company out of Japan. The Yen rose 5.5% against the US dollar during

2011.The Mexican peso depreciated by 11%, the second most. Nissan shifted production of low-cost cars to Thailand and Mexico in recent years to counter losses from making vehicles in its home market as the yen appreciated more than any major currency since 2010. Finally, we can see as well that Mexico is a key engine for the company growth in the Americas. Nissans Versa thats built in Mexico is a major vehicle in the US and South America. With the new plant, it is estimated that Nissan will be able to produce 1 million vehicles in Mexico, the most capacity of any carmaker there.

Criteria 2: Political, Legal, and financial Environment of the country: trade barriers and exchange rate control.

The article doesnt give any information about this. However, according to Global Edge website, the administration is grappling with many economic challenges. Among them, the need to upgrade infrastructure, modernize labour laws, and make the energy and manufacturing sectors more competitive. Calderon top economic priorities are reducing poverty and creating jobs.

Criteria 3: The market support infrastructure in the country: competent infrastructure and competent partners: access to capable locals firms; level of local distribution chains, local telecommunications, local advertising support.

As the paper tells us, Nissan already has 2 currents factories in Mexico. It also has partnership with Renault SA and Daimler AG, which make it easier to install a new plant.

Criteria 4: Brand/company franchise relative to competing products/companies markets where a brand or company name is already established; few viable directs competitors?; lead country, country where the products will be first adopted;

As Nissan already has 2 factories in Mexico, it makes it a lot easier because is name is already established. His current Mexican plants were at their operating limits, so the market is good enough to have a new plant.

Criteria 5: Degree of market Fit with company, policies, Goals and resources.

The new plant is intended to produce vehicles for the Americas. As we said before, Nissans currently Mexican plants were at operating limit and have the capacity to be developed across the Americas thanks to their capacity of production and the opportunities the Americas have. 4. What the target market?

With the new plant opened, Nissan will be targeting the Mexican market, but in addition will supply to the rest of the Americas (North, Central and South) with the units produced in Mexico while taking advantage of its low production cost.

5. Entry mode The most appropriate entry mode for Nissan to the Mexico is the Wholly owned subsidiary. We can analyse this decision from several points of view. Entry mode point of view: By choosing the wholly owned subsidiary entry mode, Nissan can avoid some of the disadvantages (sharing market information, share revenues, etc.), by partnering with other firms (such as Renault or GM). To choose this entry mode is imperative to fulfil three assumptions: a) The Company can afford the costs involved in setting up a wholly owned subsidiary. As we see in the article (and is a reality), Nissan has built up two previous factories in Mexico, so building up a third factory would not become an issue for this Japanese monster enterprise.

b) The Company is willing to commit with the market in the long term. Nissan has stood his interest for the Latin American market thanks to the profitability of this market, the queen proof of it, is the construction of the previous two factories; Nissan expects to be around for a long time. c) The local government allows foreign companies to set up wholly own subsidiaries on its territory. The Mexican government does not have a problem on international enterprises setting up subsidiaries on its territory; once again the previous two factories built there are the proof for this statement. By establishing the wholly owned subsidiary, Nissan has the highest level of control in the marketing mix, also is able to provide relative control to all companys operation in the target market (for this case the Americas), but also it represents the highest level of risk for a company (the country risk must be managed, the local policies, local currency, etc.). It involves establishing a new company that is a Mexican citizen.

Macroeconomic point of view: The article specifies that Nissan started from scratch to build up a brand new factory in Mexico aiming at the goal of avoiding losses from the yen appreciation. According to the macroeconomic theory (and common sense we must add), if Nissan keeps their production and assembling factories in Japan, their sales in the home market (Japan) would not be as profitable as if they export the vehicles. We will see the explanation ahead. Exporting case: Nissan starts to export their vehicles (having the factories in Japan) to all kind of destinies in the world. Their exports would be paid in an international currency (say USD), as soon as the currency is exchanged for yen, Nissan would have less money thanks to the yen appreciation. Importing case: Nissan starts to export the assembled vehicles from their plants in Mexico to Japan (or from the another point of view, Japan imports the vehicles from Mexico). As soon as Japan receives the vehicles, the transaction would not have losses because of the yens appreciation. The margin is covered by Nissan itself by becoming importer and exporter at the same time. Besides, the export process becomes easier if Nissan tries to export to the Americas already having their plant in Mexico. Strategic point of view: Mexico and the Americas in general, have become such a great market for carmakers such as Nissan. Nissans Mexican output hit a record last year, rising 20% from 2010 to 607,087 cars and light trucks, according to data from the nations chamber of auto producers 1. As we can see, Mexico is a great market for Nissan, their sales increase and the export process to the Americas becomes easier. Nissan took a smart decision by building up their factories in Mexico. 6. Branding in comparison with the competition

As of 2012, the company has been Mexicos top seller of cars and light trucks in the past three years, beating out General Motors Co. (GM) and Volkswagen AG. (VOW). Essentially, its the biggest car company in Mexico at the moment and the brand is gaining recognition within the continent, continuing to expand its production and market share.

Paraphrase: Nissan Plans $2 billion plant in Mexico to avoid losses from yen. By Alan Ohnsman & Adriana Lopez Caraveo - Jan 25, 2012 6:26 PM PT. BLOOMBERG. [Restored 31/03/2013]. Web avaible: http://www.bloomberg.com/news/2012-01-25/nissan-to-build-2-billion-mexican-plant-to-avoid-yenlosses.html