Japan’s Car market conundrum

In class, we discussed the idea that productivity is a measurement derived from how much outputs are produced over how many inputs are put into the production. Knowing how important production is, I decided to compare the math with the practice of making cars.

An article in the Economist discusses how large Japanese automobile manufacturers such as Nissan, Toyota, and Honda make money by large productivity. The article reports that many car makers believe that a firm must churn out at least 6 million cars in order to make money. This makes sense, as more production eventually becomes cheaper due to economies of scale.

However, the main purpose of the article was examining how market followers, such as Mazda, Mitsubishi, Suzuki, and Subaru are making a profit without the mass production. Being smaller firms, they do not have the means to compete on volume, as is the norm with the market leaders. To further emphasize their desire for independence, many car markers have thumbed their nose at merging with their larger competitors, instead focusing on exporting their cars to the US, and capitalizing on cheap labor from places such as India. So, through a mixture of tax breaks and the focus on improving efficient consumption of oil, smaller car manufacturers have been able to cling to their independence.

However, there are problems on the horizon. It is apparent that many of the large car manufacturers are focusing on new fuel mediums. This is due primarily to the effect oil pollution has on the environment. Pro-environmental pressures are making noise about continued development of oil-powered cars. In addition to these pressures, government officials add further strain by passing stiff taxes on the purchase of oil. It is known that the development of cleaner fuel will result in more jobs, but it also puts the smaller car manufacturers at a disadvantage.

In this market, it can safely be assumed that the market followers should have merged with the leaders. In this case, productivity is, indeed, an important component. In the current situation, these car manufacturers enjoy freedom from the sway of the big three. However, in the long run, the tax breaks and oil efficiency will be phased out, and once more, productivity will be the primary dominant measurement of success.

However, falling oil prices may stave off environmental watchdogs and provide a saving grace for the smaller companies, allowing them time to transition from oil to another fuel source. Also aiding these smaller companies is Japan’s history of supporting failing businesses. But it is uncertain whether or not this will be enough to prop up the smaller companies, as Japan has just exited a deflationary period, resulting in a weakened currency and a more expensive bailout bill .

Given all of this, what do you think that the followers should do to protect their business? Do you think that gas prices will afford enough protection? Will Japan continue their history of bailing out failing companies now that they have weaker currency?

“Lots of Oomph; Japanese Carmakers.” Economist 25 Oct. 2014: 68. Print.

“Replacing Oil: Alternative Fuels and Technology.” Replacing Oil: Alternative Fuels and Technology. Web. 10 Nov. 2014.

Human vs. Robot: The Battle for the Workforce

In class we learned how increasing productivity and efficiency of process can lead to larger profits for the firm. One of the methods used to increase productivity was the incorporation of robots into the workforce. We learned that robots can be used in a variety of ways, such as milking cows, constructing cars, or transporting. With decreased cost of production and human error, robots are among the most supported guarantors of future profits. However, not everyone supports the growing use of robots in the workforce. According to the Economist, robots are the death of the lower – middle skilled workforce and the beginning of “premature deindustrialization” (The Third Great Wave, p. 4)

The terms “efficiency” and “productivity” have always been referred to positively; as efficiency in process rises, productivity rises.” Thinking this through, we define efficiency as the better use of resources, the decrease in human labor per product, and the increase in output from freed – up labor, which ultimately should result in an increase in wages. In essence, to increase productivity, efficiency has to increase; and efficiency is synonymous with less cost and more revenue. Revenue is then used to reward workers for their high productivity. It is here that the robot-human conflict comes in.

It does not take a seer to foretell the replacement of low-skill human laborers by robots. The Economist outlines that, in a correct system, as technology replaces human workers; the higher skilled workers make more money and spend more money, creating new jobs (Technology isn’t working, p. 6). However, it is no stretch of the imagination that businesses are reluctant to increase the wages of their employees, and this issue is the problem. Average human productivity increased last year at a rate of 2.5%, while wage increase lagged at 1%. This shows that, as output increased, people earned marginally less than what would have been normal. Without increased wages, people cannot spend, and without spending, there is no new creation of jobs.

Furthermore, we know that robots do not require payment for their services. And as we saw on Monday, their accuracy and precision removes the problem of human error, making them the epitome of efficiency. These facts make them a more viable solution to increasing output. As the Economist observes, COOs and managers see that robots can dramatically increase a firm’s output without having to receive payment, and so they invest in more robots (6). This results in less need for human labor, which leaves many unemployed, which ultimately leads to less sales and more inventory.

As time moves forward, technology will continue to improve. We saw this with video cassettes to DVDs to online streaming and the ipod series, and now we are seeing the workforce demography change as well. I feel that businesses have to find a balance between robot and human workers in order to maintain cash flows. I find it interesting that something so helpful in the workforce could lead to such problems, and it merits discussion.

How do you feel about robots entering the workforce? Do you really think it will be all that bad? How do you think low-skill laborers will make a living if their jobs are occupied by technology that does not need money to survive?

“The Third Great Wave.” Economist 4 Oct. 2014: 56, 58. Print.