Why do you think the Japanese sports and recreational goods manufacturer Shimano has limited its vertical and horizontal expansion?
Introduction
One of the fundamental forms of strategic variation among business organisations is corporate expansion into a new market ( 1979). With globalisation as the buzzword of the decade, international expansion is fast becoming a priority for companies of every size. Although this is the case, business expansion is also among the least understood outcomes of the inter-organisational environment, where incentives and constraints abound. (1998) reported that scholars studying international expansion have similarly recognised the effect of competitive forces on the market attractiveness constraint. Their models predict an initial impetus to follow early rival entrants into a foreign location, but only up to a point. The follow-the-leader behavior has been explained as an effort to avoid leaving close rivals unchecked in foreign markets from which they might derive low-cost products or cash from profits that feed their competitive drives in the home market or elsewhere (1992).
Expansion ability, which is the time and cost needed to increase/decrease the capacity without affecting the quality, to a given level. Another agility factor is the range of business volume at which the business is run profitably. The agile business like Shimano must be able to both predict market demand and adjust its operations. Prediction of the effects of business policies is the hallmark of the fourth phase of rules maturity.
This paper focuses on the analysis regarding the reason behind why Shimano has limited its vertical and horizontal expansion, a Japanese sports and recreational goods manufacturer.
Discussion
Company Background
Shimano, Inc. is a Japanese multinational manufacturer of cycling components, fishing tackle, and snowboarding equipment.
In 2005, the company had net sales of US.4 billion (see Appendix 1). Bicycle components provided 75 % of its sales income. Fishing tackle produced 23 % of the company’s sales income, while other products—including snowboarding equipment and other forged parts—produced about 2 % of its sales income. Shimano produced golf supplies until 2005, when they abandoned the enterprise as unprofitable.
Headquartered in Sakai, Japan, the company has 32 consolidated subsidiaries and 11 unconsolidated subsidiaries. Its primary manufacturing plants are in Kunshan, Malaysia, and Singapore, while its sales are in Europe (41 % of total sales) and North America (17 %).
Analysis
For the economist, the rationale of international business lies in the theory of comparative advantage, the same theory which in effect lies at the heart of all economic specialisation ( 1973). Shimano Inc. decided to specialise on what they do best, which is manufacturing, and succeeded in doing it through trading and forming alliances with businesses worldwide. Their rationale for focusing on international growth is that worldwide macroeconomic factors have a strong correlation to business and consumer demand for their services, cycling components, fishing tackle, and snowboarding equipment. In fact, the company is expecting a broad continuation in the economic conditions and demand in fiscal year 2007 as compared to fiscal year 2006. Previously, Shimano pursues operational effectiveness through expansion through mergers between former competitors that create a larger organisation, allowing them to take advantage of economies of scale and to survive price wars. However, Shimano Inc. are now liming their expansion both horizontal and vertical.
Cost, scope of control and knowledge of market are aspects of the business’ considerations in their expansion strategies. Costs are to some extent a function of the size of the business. The growth of a business is thus parallel to the increase of its costs, whether direct or indirect. A percentage of sales revenue goes to research and development, a most powerful motivating force in international business. Labour costs likewise enlarge correspond to the increasing number of Shimano’s employees. Manufacturing, overhead and transportation are also some of the more pertinent entries to the books of an international business such as Shimano. Their expansion strategy, for that reason, aligns costs and business objectives in such a way that the least resources are used for the most output.
Based on the list of subsidiaries and affiliates of Shimano Inc. (see Appendix 2), we can actually determine that company has been one of the successful international business players in their industry. However, it has been observed that Shimano Inc. are now limiting their global expansion both vertically and horizontally. Perhaps, Shimano Inc. wants to initiate a management system and strategy that could maintain the organisation’s capability, strength and competitiveness. It is important that the management team and the organisation per se should always open their mind for changes that they might encounter in order to cope and adapt to the latest development that are happening within and outside their environment. The outstanding profitability performance of Shimano as seen in their financial performance is not accidental—this firm profit because they have built world-class management systems. This does not mean that there is anything mechanical or bureaucratic in the way they operate. This firm shape their processes and methods in order to work for high performance. This firm perform well because they are designed to grow in profit, size and management capability. Actually, Shimano might limit its global expansion due to following reasons:
- Change management within the company affects the business performance.
- High turnover rate since outsourcing could mean lost of jobs.
- The company are now satisfied to their current expansion scenario.
- The need for effective expansion plan.
- The company might want to maintain their current business culture.
A tenet central to accomplishing their avowed mission included a global inclusive commitment, which, for Shimano meant thinking and acting globally, employing a multicultural workforce that generates innovative decision-making for a diverse universe of customers and partners, innovating to lower the costs of technology, and showing leadership in supporting the communities in which they work and live.
Conclusion
Judging from the above discussions, it can be said that Shimano has already successfully made use of their international expansion strategies in order to prosper as a whole. From the five available modes of international market entry and development (exporting [indirect and direct], licensing & franchising, management contracts, collaborative ventures and wholly owned subsidiaries), only one of these is not utilised by the firm, which is management contracts, or an arrangement under which operational control of a business is vested by contract in a separate enterprise which performs the necessary managerial functions in return for a fee. This method, basing on the history of management of the company, need not be employed, as past management performance have shown that Shimano Inc. is well and able to perform their management functions excellently.
Different methods of international market entry and development should be used in different markets, as each market has a characteristic unique from all others of the same field. There is a need to analyse the suitable type of entry mode that a company like Shimano will use in the pursuit of wider market scope. The development modes, if needed, should be combined with other expansion methods in order to maximise the full potentials and benefits of the market that they are targeting to enter, as studies have shown that the integration perspective of international strategy suggests that it is advantageous to operate internationally because a firm’s competitive actions across national markets can be integrated to gain advantage in local markets (1999).
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