Process of Technological Accumulation of Nissan

Executive Summary

This essay will focus on the process of technological accumulation of Nissan (Japan) and Hyundai (Korea) in shaping their competitive advantage. Technological capabilities can be achieved from leveraging multinational corporations via external or internal modes. Government should also play an active role in providing institutions and supportive industrial policies to enhance the economy. Last but not least, a good adaptive strategy is required in order to compete in the ever-changing economy. The interactions of these three factors together with the presence of innovation in the evolutionary learning process could then yield Nissan and Hyundai with distinctive competitive advantage over a long period of time.

Role of multinational corporations and the effectiveness of technology transfer

In Hyundai and Nissan cases, integrating them into existing value chains of developed firms in the form of joint ventures, licenses, and contract manufacturing services can leverage the resources of their collaborating partners and gain new technological and organizational skills as well as market access (Hobday, 1998; Mathews, 2002).

In the 1980s, Hyundai began to seek strategy of externalized technology transfer in the first stage by developing licensing with advanced foreign carmakers, Mitsubishi, to gain technological capabilities. They obtained parts that were difficult to manufacture, such as engines and power trains directly from Mitsubishi, but fabricated the cylinder head and blocks, housing, and transmission case in house (Chung, 1996, pp.1). Licensing was chosen because it lowered the risk of Hyundai as a licensee to fail in manufacturing certain components, and could cut the cost associated with manufacturing the components that were difficult to produce. While it might be incurred as disadvantages for Mitsubishi as a licensor, licensing could serve as a source of competitive advantage for Hyundai, because it may develop a formidable market using the patents, and components in their car and reap huge profits than Mitsubishi, who may not foresee the huge market potential from different type of niche markets such as compact family car but only received a royalty in return (Bhagat, Phatak & Kashlak, 2009, pp.213).

Unlike Hyundai, Nissan used a strategic alliance to acquire its technology capabilities. According to Phatak, Bhagat, and Kashlak (2009) strategic alliance is formed to obtain technology, reducing environmental risks, or capture key human and material resources. In 1999, Nissan and Renault signed a contract with each firm has cross shareholding over another. The agreement included the appointment of a COO of Renault, Carlos Ghosn, to take charge in Nissan Japan's restructuring process. Nissan's motive to engage into strategic alliance type of externalized technology transfer was to directly absorbed the tacit knowledge that Renault possessed in its production strategy of synchronous delivery and to decide together on an action plan which involves all the steps needed in order to reduce logistics costs in the world and to standardize all the processes between Renault and Nissan (Jindal, Jee & Thakur, n.d.). Nissan and Renault could also share its research staff, production facilities, and business plans for specific type of product, which turned to be benefiting both companies in term of upgrading economies of scale of both firms without forcing one company's identity to be violate by others (Phatak, Bhagat & Kashlak, 2009, pp.229). For instance, Nissan's market share increased in light commercial vehicle segment in Europe have been partly a result of modelling various Renault van models such as the Renault Kangoo/Nissan Kubistar, Renault Master/Nissan Interstar, Renault Trafic/Nissan Primastar. In addition, Renault built most of the diesel engines in Nissan cars that is sold in Europe. Nissan used these segment to accumulate sales throughout Europe, where it had already become the number one Asian brand in many key markets (Nissan-Global, 2005).

Role of Industrial Policy

Institutions are fundamental to the structure of the Japanese business system of Nissan. In particular, interconnected business relationships are promoted towards working for the nation. Adhering to the notion of "collective groupism", the "Ministry of International Trade and Industry", an agency of the Japanese government, provided Nissan with incentives to vertically integrate technology by enacting the provisional act for the "Promotion of the Machinery industry" in 1956-1970 (Anderson, 2007). This allowed for a constant supply source of technology, by "inter-firm" relationships and trade via its keiretsu members. The Japanese government continuously encourages and often subsidies the construction of new assembly plants allowing for innovation of technology in-house.

Also, the contribution of financial institutions allows for the "keiretsu" business network to operate within Nissan by networking the different shareholdings with state-owned banks (e.g. "Bank of Japan"(Anderson, 2007)). Indirect financing was encouraged and allowed for easy "access points" for government intervention (Anderson, 2007). Through intervention such as tax initiatives or funding the production of manufacturing of technology Nissan is able to progress providing it a "constant market" to maintain stability and protect it from a decline in the economy. For example, The "Nissan Leaf" model in 2009 subsidies are compounded by the government's initiative of economic stimulus plans (Takahashi, 2012). This called for the doubling of national consumption tax to 10% to provide Nissan with funds to not only increase the funding for technology towards local production exports but also maintain strong domestic output. However, the current economic crisis has significantly affected the Japanese economy, particularly the automobile industry. A steep reduction in government incentives for Nissan is imminent.

Initially, Hyundai attempted to imitate Nissan's Japanese system of lean production, however, it eventually formed its own processes of technology accumulation under the influence of Korea's institutional environment. This environment is subject to the privatization of commercial businesses i.e. Hyundai, allowing for the government to own large-scale operations. Korea's government intervention directed the private industry by designing production and export targets in order to expand Hyundai's capital/technology, and provide new jobs. With the profits generated, Korea's government intervention allowed for a motivated and well-educated work force producing high quality