ATV industry:YAMAHA

YAMAHA Case Project Yamaha Team:

Texas A&M University - Corpus Christi ECON 5315.001: Managerial Economics Marilyn K. Spencer, Ph.D. December 9, 2013

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Table of Contents
Introduction ................................................................................................................................................... 3 A. B. C. D. E. F. G. H. I. J. Define the Industry: .............................................................................................................................. 4 Analyze the Structure of the Industry: .................................................................................................. 5 CORPORATE CULTURE ................................................................................................................... 6 FIVE FORCES ANALYSIS: ................................................................................................................ 9 The Firm’s “Co-Opetition/Value Net” ................................................................................................ 14 The Firm’s Strategic Moves That Help Sustain Competitive Advantage ........................................... 17 Demands (ATV vehicles).................................................................................................................... 20 Costs (ATV vehicles) .......................................................................................................................... 22 Strategic Positioning in This Market .................................................................................................. 23 Recommendation ................................................................................................................................ 27

References ................................................................................................................................................... 28 Appendices.................................................................................................................................................. 33 Tables .......................................................................................................................................................... 35

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Introduction

Genichi Kawakami was the first president of Yamaha in 1950 and led the company to focus on the motorcycle market in 1953 because of market and competitive factors. Yamaha was founded on July 1, 1955 by Genichi Kawakami with a famous quote: “If you are going to make it, make it the very best there is” (YAMAHA-Motor.com).With confidence in the new direction, Yamaha’s first product came out in 1955, YA-1. This first product helped Yamaha win the 125cc class in the two biggest race events in Japan named the “Third Mt. Fuji Ascent Race” and the “First Asama Highlands Race”. (Paving the Road to Yamaha Motor Corporation, 2013) The goal of Yamaha is to provide products with superior quality, unmatched performance and extraordinary value to satisfy its customers. Some of its best-known product lines are motorcycles, scooters, electro-hybrid bicycles, four-wheel ATVs, snowmobiles, and personal watercrafts (Yamaha Motor Corporation, 2013). Yamaha’s motorcycles have 15% market share in the US and bring up to 70% of the company’s overall sales. In addition, its overseas markets are about 90% of sales (Yamaha Motor Co. Company Profile 2013). Besides providing superior products to its customers, Yamaha is also positioning itself as an outstanding brand with a focus on the environment and sustainability. The company strives to be a responsible corporate citizen and understands the importance of these areas towards the overall success of its business.
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A. Define the Industry:

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An all-terrain vehicle is a motorized off-highway vehicle. It has four low-pressure tires and the operator straddles the seat. It also contains handlebars for steering control. There are two types of ATVs. Type I ATVs are designed for a single operator and no passenger. Type II ATVs are designed for one operator and have the ability to fit one passenger. (Specialty Vehicle Institute of America, 2007). The ATV industry includes all firms and activities involved in the manufacturing of ATVs. According to the article “Specialty Vehicle Institute of America,” it said that there are multiple sizes of ATVs and each comes with a recommended age requirement. Riders age 6 and older are recommended to ride an ATV with an engine size less than 70 cubic centimeters. With riders age 12 and older, the industry recommends an ATV with an engine size of 90 cubic centimeters or less. Engines sized greater than 90 cubic centimeters have an age requirement of 16 and older. (Specialty Vehicle Institute of America, 2007). According to the article “Beyond the Corporate Juggernauts,” Giacchino provided that Suzuki released the first modern four-wheeled ATV in 1983. Suzuki had historically owned over 30% of Arctic Cat, but had been gradually selling stock back to the company. In the ATVs industry, the Motorcycle Industry Council is the body that maintains market share data on ATVs. (Giacchino, 2007). In a recent report, the retail sales of motorcycles and ATVs were found to have declined by 14.7% and 10.4% in the first quarter of 2013, respectively, when compared to the first quarter of 2012 (Redwine, 2013). Table 1. Recent Changes in Retail Sales (See Appendix.)

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Table 1 shows that the total retail sales in March 2013 fell by 19.5%, with a decrease in ATVs by 12.5% and scooters by 46.4%. One explanation for the low first quarter sales is that cold weather caused a decrease in demand. (Redwine, 2013).

B. Analyze the Structure of the Industry:

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The ATV industry has become increasingly competitive over the years. The main manufacturers include of the product are Honda, Polaris, Suzuki, Arctic Cat, Kawasaki, Yamaha, BRP, KTM, Kymco, and TGB. In the United States, there were over 7 million ATVs were in use by more than 16 million American users in 2006. There was an increase of over 200% since 1995, to an estimated 856,000 units in 2006, in annual sales of ATVs. Eighty six percent of ATV owners were male and the median annual household income of ATV owners was $52,800. (“Specialty Vehicle Institute of America,” 2007). According to a report, the associated market share in the ATV industry is as follows: Honda 29%, Yamaha 21%, Polaris 21%, Suzuki 11%, Kawasaki 8%, Arctic Cat 6%, BRP 3% and John Deere 1% (Giacchino, 2007). From Chapter 5 of the book “Economics of Strategy 6th edition”, we can measure the concentration of the market from the provided numbers above: HI = 292 + 212 + 212 + 112 + 82 + 62 + 32 + 12 = 1954 (>1800). From this number, we can tell that the ATV market is highly concentrated. Moreover, it is an oligopolistic market and all firms in the market will be affected if a competitor changes their pricing strategy. (Besanko, et al., 2013, p. 171).
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Polaris is considered a main competitor of Yamaha. In 2012, Polaris reported its revenues and operating income at of 20.8% and 36.7%. International sales increased 9% when compared to previous years. As a result, its operating margin increased in 2012 and its successful international sales helped the company overcome decreasing of sales in the ATVs industry in 2013. (Hanley, 2013). Meanwhile, Arctic Cat was doing well in the first half of 2013 with revenues and operating income reported at 14.7% and 25.3%. Arctic Cat also made a strategy to focus on the domestic market which led them to earn great benefits from high sales growth rates. (Hanley, 2013). While other manufactures have backed off of their investments with smaller racing contingency pools and a few sport model lineups, Yamaha has held its position as the largest player in the sport quad segment. Yamaha’s Special Edition model YFZ450R and Raptor 700R have remained the best-selling sport ATVs in the market. Yamaha is considered a leader in supporting sport equipment and promoting safety in the ATV industry. (Kaiser, 2012).

C. CORPORATE CULTURE

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Yamaha’s corporate culture is characterized by creativity, ingenuity, and global responsibility. Perhaps most importantly, Yamaha strives to be a “kando creating” organization. “Kando” is the Japanese word expressing the feelings of overwhelming satisfaction and excitement felt when one experiences something of great value. (Yamaha Motor Co., Ltd., 2013). Kando is deeply engrained in the culture at Yamaha and summarizes the organization’s corporate mission. Employees are encouraged to not only create kando for customers, but to use their

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individual creativity to create kando within the workplace. In addition to the focus on kando, the culture at Yamaha values corporate social responsibility and works towards enriching the lives of customers and society as a whole. (Yamaha Motor Co., Ltd., 2013). Yamaha strives to create kando for customers worldwide through use of their products. By encouraging and challenging employees to be innovative, Yamaha continues to be leader in technology and always strives to be on brink of the next big breakthrough. The company believes that the key to staying to relevant is to offer the most technologically advanced, superior quality product to customers. (Yamaha Motor Co., Ltd., 2013).. The culture at Yamaha is one that seeks provide maximum satisfaction and excitement to consumers. This is exemplified in their brand slogan, “Revs Your Heart” which captures the feeling of kando that customers get when using a Yamaha product. (Yamaha Motor Co., Ltd, 2013).

Yamaha realizes that in order to create kando for consumers, it must first create an organizational culture for employees that fosters both creativity and intellectual challenge. This is exemplified throughout management’s corporate philosophy of the company. Yamaha offers three action guidelines which employees are expected to embrace: to perform with speed, to have a “spirit of challenge” and to be tenacious with work efforts. (Yamaha Motor Co., Ltd, 2013). Employees are taught to work with these three values in mind and have thus created a culture encompassing efficiency and productivity. (Yamaha Motor Co., Ltd., 2013).

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One of Yamaha’s three management principles is to create an environment that promotes the self-esteem of their employees in order to encourage creativity and fulfill the corporate mission (Yamaha Motor Co., Ltd, 2013). This is done through an intricate system of employee evaluations, rewards and wellness programs. Yamaha utilizes their expertise in sound and musical equipment to benefit employees. Employees are given the option to attend a free, onehour per week musical class covering a broad range of topics including piano, guitar and choir. (PR Web, 2010). Yamaha also fosters creativity and enjoyment within the workplace by hosting a custom version of “American Idol” for employees. (PR Web, 2010). This competition allows employees to perform in front of co-workers and together vote on a winner. These initiatives help eliminate stress within the workplace, build morale, and allow employees to explore their creativity and enhance the kando within the organization. (PR Web, 2010). Yamaha dedicates great resources to ensuring employee satisfaction and maintaining a positive organizational culture. Japan’s Ministry of Health, Labor and Welfare has acknowledged the company consistently throughout the years. In 2005, Yamaha was awarded the Family Friendly Company Award for their exceptional efforts on maintaining a good worklife balance for employees .(Yamaha Motor Co., Ltd., 2013). This includes reducing long work hours and offering childcare services. These efforts help build a culture of employee appreciation and satisfaction. (Yamaha Motor Co., Ltd., 2013). In addition to being a “kando creating company” (Yamaha Motor Co.. Ltd., 2013) for both customers and employees, Yamaha focuses on being a sincere, moral and a responsible corporate citizen. Having a positive global presence has become a large part of the company’s organizational culture. Yamaha’s second management principle is to be environmentally conscious and use a global perspective when conducting business. There is great emphasis
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placed on diversification as the company has both customers and employees worldwide. The value of diversification can be seen in Yamaha’s hiring practices throughout the years. In 2012, Yamaha employed nearly 20,000 employees outside of Japan. In an effort to diversify and provide opportunities to seniors, the Human Resources Department formed the Senior Partner System and assists employees in working at the company beyond the normal retirement age. The organization also exceeds standards for hiring persons with disabilities. (Yamaha Motor Co., Ltd., 2013) In line with the culture of being a positive and responsible corporate citizen, Yamaha frequently dedicates time and resources to various social welfare programs worldwide (Yamaha Motor Co., Ltd., 2013).. The organization uses their knowledge in sound and musical technology to benefit the global community. They haveIt has opened up Yamaha Music Schools around the world in an effort to promote creativity and self-expression and have nearly 700,000 students in attendance (Yamaha Motor Co. Ltd, 2013). In addition, they haveit has contributed their its services to helping the visually impaired by using sounds and rhythms to explore senses and emotions. (Yamaha Motor Co., Ltd., 2013)..
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D. FIVE FORCES ANALYSIS:

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Internal Rivalry There are more than 10 ATV firms in the US market. Yamaha’s major competitors are Arctic Cat, Can-Am, Honda, Polaris and Suzuki (“All-terrain vehicle,” 2013). The internal rivalry among the ATV industry is intense as firms compete to gain and maintain their market
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position. In the ATV industry, fixed costs seem to be high because engineering performance and technology are involved as the main factors in production (Yamaha Motor Co., Ltd., 2012). Therefore, there are strong exit barriers for the all-terrain vehicles industry. Moreover, vehicles in this industry are indifferent when comparing utilizations, features and characteristics. The customer switching cost is low since ATVs’ price of each firm is not too different. Manufacturers attempt to maintain and attract their customers to increase market share. Instead of price competition, firms emphasize technology and quality development in order to improve their product’s utilization. They attempt to increase market share by engaging in non-price competition. System development is a significant strategy used to compete in this industry. Polaris and Can-am developed the full-time 4x4 system that allows drivers to use the vehicle in 4x4 at all times while rival’s vehicles have part time 4WD system. (“Who has the best 4-wheel drive system?,” 2012) Yamaha has launched a strategy for engine procurement and has improved its body production in order to gain advantages in competition. The firm also worked to enhance customer service and public relations in order to gain competitive advantage. They focus on creating relationships with customers and building brand loyalty. (Yamaha Motor Co., Ltd., 20132) Entry The ATV industry is not attractive to potential entrants because the hybrid vehicle market requires significant costs to get into. A large number of manufacturers in the ATV industry discourage new entrants to enter this intense competitive market. Existing firms have cost advantages and more efficient marketing that would be structural barriers to deter entry. Processes used to produce the vehicles require special knowledge and expertise including engineering and technological procedure. (Yamaha Motor Co., Ltd., 2013) The special knowFormatted: Font: Not Bold

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how of incumbent firms in ATV production could be one significant factor helping to deter entry. Another efficient efficiency barrier is advantages associated with economies of scale that incumbent firms could adopt in order to produce ATVs at a lower cost. Incumbents would learn the economies curve and discover the most efficient quantity of output and price. Existing firms could also utilize umbrella marketing to create brand awareness for their products. Umbrella branding also allows for lower marketing costs. (Besanko, at el.,et al. 2013, pp. 202-205) For instance, a marketing plan for a Yamaha motorcycle would be more efficient as customers associate the firm as producing high quality ATVs. In contrast, new firms would experience great costs in creating brand recognition for their products and this would erode profits. If structural barriers were insufficient in deterring new entrances, incumbent firms would create strategic barriers to prevent it. Incumbent manufactures are able to apply limit pricing by reducing prices in order to discourage entry. They also have sufficient excess capacity to satisfy demand of the market. Incumbent firms have worked hard to create brand loyalty and maintain a good relationship with their customers. Sporting activities and dealer meetings are created continuously. (Yamaha Motor Co., Ltd., 2012) Brand loyalty could be adopted by existing firms as a significant strategy to deter entry because it helps to reduce the chance for new sellers to steal customers. Therefore, entry seems to be risky and unsuccessful in this market. Substitutes and Complements ATVs are four-wheeled vehicles used to travel on unpaved routes including sand, snow and rough ground. They are also used as off-road vehicles in sport activities. When focusing on the characteristics and utilization, the main substitutes in ATV industry are side-by-side vehicles (SSVs), snowmobiles, golf carts and off-road motorcycles. These vehicles are defined as
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substitutes because they have same performance and uses as ATVs, and they can satisfy similar needs. (Yamaha Motor Corporation, 2013) Side-by-Side vehicles or SSVs are close substitutes that have similar performance characteristics as they work on unpaved roads and can be used as sport vehicles. One difference is that they include a side seat. In addition, the prices of these two vehicles are little different. Therefore, a change in SSVs’ price will affect the quantity sale of ATVs. Snowmobiles are also substitutes based on their uses on snowy ground. ATVs and snowmobiles have similar functions and both satisfy a customer’s need of transportation on this particular terrain. Another substitute offered to customers are is the golf carts, which tends to be a selection for customers needing to drive on their own properties. One weakness of golf carts is that they cannot perform well on challenging terrain as well as ATVs can. In addition, golf carts have a lower speed capacity than ATVs. (Yamaha Motor Corporation, 2013) Ultimately, the decision of customers depends on the requirements of the terrain. If the terrain is not a challenge, customers might choose a golf carts, as they tend to be viewed as being more comfortable due to increased seat space and a roof. On the other handHowever, a customer might choose an ATV if their her properties have a rough landscape. The last major alternative for customers is off-road motorcycles. Off-road motorcycles satisfy a customer’s need in recreation, especially related to sport activities. ATVs and off-road motorcycles are in the same product line of sport vehicles. Off-road two wheel vehicles fulfill a customer’s need of a sport activity vehicle similar to the way ATVs do. The customer switching cost is low as motorcycles have a lower price. (Yamaha Motor Corporation, 2013) Off-road motorcycles tend to be more popular with customers looking for the lowest price.

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There are also complements to ATVs in the industry. Helmets, gloves, jackets and sport shoes are main complements (Yamaha Motor Corporation, 2013). Drivers use this apparel for safety when driving ATVs. They are sold either together with vehicles or offered for purchase with the vehicles. Therefore, their price and demand are relative. Supplier Power There is a great deal ofMany inputs and raw materials are used to produce ATVs, such as motors, break systems, engines, tires and aluminums. Yamaha produces some materials parts themselves itself, in order to achieve a more efficientlower cost. However, they it also obtains some raw materials and parts from outside suppliers. Suppliers have a medium amount of power over Yamaha because the cost is determined by suppliers. If suppliers increase their prices, it would erode the firm’s profit. Substitute inputs are not available because the production of ATVs requires specific materials. Furthermore, because Yamaha focuses on high quality products, substitute materials might not be sufficient due to the fact that they might alter quality. (Yamaha Motor Co., Ltd., 2013) Another significant supplier of ATV firms is employees. Yamaha Motor Co. Ltd. hires approximately 3,700 employees that are both foreign and American (“Yamaha Motor Corporation Usa USA in Cypress, California,” 2013). Employees in this industry are unionized and therefore have power over the firm (“Yamaha Corporation History, ” n.d.). It is unclear how many employees are unionized. The union provides a bargaining power to employees to negotiate with the firm about their wage and welfare. An unsatisfactory offering or policy could lead them to strike and this would affect the profit of a firm. (Besanko, at el., 2013, pp. 273-274)
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Buyer Power There are two groups of ATV buyers. The first is individual customers that buy ATVs to satisfy their personal needs. The dealerships that retail and sell the product to individual customers are the second major category of buyers. The ATV industry focuses on dealerships as main customers, specifically sport vehicle dealerships. The demand for ATVs in the United States makes up 43.6% of the demand worldwide. Because of this high demand, there are many ATV dealerships in the United States responding to the needs of customers. (Yamaha Motor Corporation, 2013) They obtain the vehicles from manufacturers and sell them to individual customers. The large amount of vehicles ordered by dealerships allows them to have a fair amount of bargaining power over the ATV manufacturers. They could request the promotion or price reduction, but it would depend on their quantity of order. Moreover, ATVs are an experience good that some customers prefer to try before purchasing. Therefore, sensitivity to price seems to be low as ATVs are focused on quality and system rather than price. (Who has the best 4-wheel drive system? 2012) Another factor that supports the bargaining power of buyers is that the customer switching cost is low. However, this is not a powerful threat because customers will compare systems and performance functions of alternative ATVs and choose the best one that offers the best function and quality to meet their own requirements. In this industry, customers are willing to pay more for higher quality. Brand image is likely to be a powerful factor that attracts buyers as well. (“Who has the best 4-wheel drive system?” 2012) Table 2 shows all levels of five forces. (See Appendix.) E. THE FIRM’S “CO-OPETITION/VALUE NET”

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Co-opetition refers to how the interactions between among firms, industries, buyers, suppliers and sellers can increase profits of the firms involved. Some of the ways that firms can show that they are co-opetitive is by trying to establish an industry standard, promoting favorable legislation, or promoting cooperation between firms and their suppliers, distributors, retailers and complimentors to enhance efficiency (Besanko, et al., 2013, p. 264). Several examples of industry-wide laws and regulations put in place for this industry are provided by the National Conference of State Legislatures. Since ATVs are considered nonhighway vehicles, they do not fall under the jurisdiction of the federal highway regulations. Therefore, states are responsible for their own legislation. Although regulations vary by state, they all support safe and orderly operation of ATVs at-large and help promote a strong reputation for the industry. It is in the best interest of the Yamaha Raptor, as well as its direct rivals, to have robust safety and operating regulations. If a lack of safety guidance were to lead to injuries, it could tarnish the entire industry and have large negative effects on sustainability. (NCSL, 2013). The ATV industry has helped promote ATV legislation for almost 30 years. It is worth noting that the majority of injuries that occur on ATVs are due to the poor behaviors of the riders. The ATV industry has worked together to provide meaningful legislation to combat these behaviors and ultimately, limit injuries. Specific legislation is meant to ensure education and training, enforce age limitations, provide for equipment mandates, prohibit certain activities on public land and ensure retailer limitations to ensure only sufficiently mature customers are able to buy ATVs. These are all examples of favorable legislation within Yamaha’s value-net. (SVIA, 2013).

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An example of how Yamaha shows cooperation between itself andwith its compleimentors is that typical retail stores like Walmart sell the miniature version of the Raptor. It is a toy ATV limited to 5mph but this shows how Yamaha and retailers who would not otherwise carry the full-sized Raptor can increase profits and mutually benefit from co-opetition. (Walmart, 2013). Yamaha has also established a relationship with other toy manufacturers such as Ride who makes die-cast replica models of the Raptor for collectors. This extends the Raptor network and strengthens the value-net of the product line. (Fishpond, 2013). Yamaha also works with retail banks in order to secure financing for potential customers. Specifically, they offer financing with GE Capital Retail Bank. This should certainly be a mutually beneficial effort for both parties. The financing option makes purchases this large much more viable for individual customers. (Yamaha Promotions, 2013). If everyone had to pay the full price up front, Yamaha would almost definitely sell far fewer ATVs. This is another great example of the firm using another firm’s services to create mutual benefit (Besanko, et al., 2013, p. 265).(Besanko, ?, 265).

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F. THE FIRM’S STRATEGIC MOVES THAT HELP SUSTAIN COMPETITIVE ADVANTAGE

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Using the resource-based theory of the firm, Yamaha is able to exploit non-tradable resources during their production of the Raptor (Besanko, et al., 2013, p. 367-369).. Specifically, they areit is able to rely on their its well-established manufacturing and business processes which have been developed over almost 60 years (Yamaha Motor Corporation, 2013). These years of experience give them a substantial competitive advantage over potential entrants (Besanko, et al., 2013, p. 367-369).. Isolating mechanisms are ways to limit a rival’s ability to copy or to minimize the effects of a competitive advantage. One isolating mechanism that Yamaha has exceled at is its use of impediments to imitation. (Besanko, et al., 2013, p. 370) They use innovation with their products to create a positive experience for the user and prevent their competition from copying their ideas through patents. Yamaha has patents on equipment as specific as their heel guards. They have patented heel guards with foot-peg suspension to soften the impacts from off-road riding. It would stand to reason that if they have an R&D division so large that they patent heel guards, they would very likely patent nearly every part of the machine. (Houser-Racing, 2013) Yamaha also has a strong history of performance, which leads to some intangible barriers to imitation. Specifically, they benefit from some causal ambiguity (Besanko, et al., 2013, p. 377-378). Since 1955 Yamaha Motor Co. has produced off-road vehicles. They have a long history of making quality products and it is engrained in their organizational culture to put the needs of the customer first. Although they have only been making ATVs since 1980 and the Raptor is a new addition to the product line, Yamaha has been making small, off-road vehicles

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for almost 60 years. (Yamaha Motor Corporation, 2013) This production longevity also allows them it to benefit from the learning curve (Besanko, et al., 2013, p. 379). Yamaha was not the first company to produce four-wheel ATVs, and the Raptor was an addition to an already well-developed market in 2001 (–Yamaha Raptor 660, 2013). However, early mover advantages have been and will continue to be possible for Yamaha (Besanko, et al., 2013, p. 378-379).For example, by integrating a previously-designed motor into a four-wheeler in 1987, Yamaha entered the market with the Banshee. This shows their its willingness to adapt and afforded them it some learning curve advantages, since they were working with a previously made engine with known capabilities and limitations. With its larger engine, this product exceled in sandy environments and helped create a niche market of off road customers. Sandy terrain was previously too difficult to navigate. This enabled them it to create switching costs for any riders who started riding in sand dunes. If consumers bought into that market and then a rival firm released an even better product, the high switching costs would likely prevent them from abandoning the Yamaha. (All-Terrain Vehicle, 2013) Strong after-sale customer support and maintenance is another way to benefit from early mover advantages. If customers are happy with the product that they bought initially, they will be less likely to purchase from a rival at the time of their next purchase. If they are pleased with the product, they may also infer similar quality levels to all associated and choose to buy more Raptor accessories. Additionally, if the early adopters of the Raptor have positive experiences with customer service and maintenance representatives, word-of-mouth could spread and lead to an increase sales. (Besanko, et al., 2013, p. 379-380)In general, this has not been the case with the Raptor. Online forums of Raptor customers show very inconsistent performance from the dealerships in terms of retail sales and service. Although there is no way to know if unhappy

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customers were more likely to post complaints, it is clear that many customers have been displeased with the level of service that they have received. (Raptor Forum, 2013) Warranties are another way to maintain sustainable competitive advantage through early mover advantages (Besanko, et al., 2013, p. 379-380). The Raptor is only served by a 6 month limited warranty, which covers the major mechanical components but not wear-and-tear items like brakes or tires (Yamaha.com, 2013). Similar to the customer service complaints, the Raptor forum revealed a generally disappointing level of support for the product’s warranty. Again, it is important to note that unhappy customers may be more likely to post in these forums than happy ones. (Raptor Forum, 2013) Exploiting the local environment is another way that Yamaha can provide a sustainable competitive advantage for the Raptor. Specifically, human capital is an important resource that is typically gathered locally. (Besanko, et al., 2013, p. 391-394) In the case of the Raptor, it seems that the sales and customer service representatives at local retailers is a shortfall. The customer forums provide several examples of disappointed customers. This represents a potential opportunity for the Yamaha Raptor. If they can provide better training or be more discerning when choosing the retailers that they allow to sell the Raptor, it could increase the customer experience. (Raptor Forum, 2013) After examining the market for the Raptor, it seems as though they haveYamaha has engaged a number of different ways to maintain a competitive advantage, such as non-tradable resources, impediments to imitation and some early mover advantages. However, it is also clear that there are opportunities for strategic moves which could help improve the Raptor’s competitive advantage among rivals. Specifically, if Yamaha is able to address and improve upon the apparent issues that Raptor customers have had with sales associate’s attitudes,

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warranty length and breadth and post-sales customer service, they could gain market share. (Besanko, et al., 2013, p. 367-394)..

G. DEMANDS (ATV VEHICLES)
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Table 3 (see Appendix) represents sales revenues for power products, which includes ATV/SSV, snowmobiles, golf carts, and generators and multi-purpose engines. The annual report does not show more detailed information about the ATV section, but we one can still get the main ideas about ATV demand trends through power products. According to Ttable 3, we can see the sales revenues of power products increased from 2011 to 2012, and the percentage change was 3.3%. The sales in the North American market represented about 51% of the whole world revenues. According to the 2012 annual report, the growth can be explained by the recovery of economy in United States. The percentage of North American sales also implies that the North American market is more important than others, so more efforts need to be put into place in this market when we work on the strategy. (Yamaha Motor Co., Ltd, 2013) For the United States market, demand for all-terrain vehicles (ATV) in 2012 had its first growth since 2006. However, the worldwide unit sales declined to 520,000, thousand partly because of the European economic crisis In its 2012 annual report, Yamaha Motor predicted for 2013 that, ATV demand would decline 9.5%, which means the total demand would be 511,000 thousand units worldwide. (Yamaha Motor Co., Ltd, 2013). The good news is that the positive economic recovery in the U.S. may increase the demand. In addition, the predictions said economic growth is predicted would be continued. Evidence also showed that American GDP

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grew about 2.5% for the second quarter in of 2013 (The Economist, 2013a). Unlike in America, European countries failed to grow their economies because un-payable debts from banks have not been cleaned up yet. There are still a lot of uncertainties in the European market, and customers do not have enough confidence in the economic recovery. Economists expect the growth of the Euro area is going towill be 1% or less for in 2014, and the economy will be still be shaky. Many European firms and households are struggling with the debts, so the ATV demand for this market will be limited. For other areas, like Japan and China, economic growth in these regions seems stable but slow. (The Economist, 2013b) Most ATVs are sold in North America and Europe. The growth of other areas is not able to compensate the declining sales in Europe. The economy of United States is still growing, but it cannot increase the sales substantially. Based on all information above, the research for this case study indicates that ATV demand for 2014 will be 505 to 512 thousand units.
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H. Costs (ATV vehicles)

The Yamaha annual report only shows us the total cost, which combines all motor products they produce. Specific data about how much ATVs cost to produce cannot be found. Yamaha has several series of ATV motors, and the price varies from $2,000 to $13,000 (Motorcycle USA, 2013). Normally, the new models will be more expensive than the older ones. For example, the 2013 Yamaha Raptor 700R is selling for $8,099, and the price of 2014 Yamaha Raptor 700R SE is $8,799. (Yamahamotorsports, 2013) New models need more technology and some new design. We can estimate that tThe cost of an upgraded model is expected to be more. The price has an increasing trend. Yamaha Motor Manufacturing Corporation is located in Newnan, Georgia. The factory manufactures 4 four product lines, including All Terrain Vehicles. This factory does not sell the products directly to the customers. They It delivers the products by Yamaha Motor Corporation USA, so the change of oil and fuel prices will impact the total cost. (Yamaha Motor Manufacturing Corporation, 2013) From 2008 to 2013 October, the oil price had increased by about 50%. But during these last two months, the oil price has dropped. Economists predict the price will keep dropping for a couple of months and then go up again in March 2014. (Mass.Gov, 2013) As a result, the expenditure of distribution will go down and then go up again. Another factor influencing the costs is labor cost. The United States Department of Labor showed data that the wage and salary of private industry workers increased 1.8% for the year ending in September 2013. Due to the economic recovery, the labor cost will is expected to increase in 2014. (United States Department of Labor, 2013)

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Comment [M4]: Spell out any number < 10.

Comment [M5]: I don’t understand what this means.

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Two major components of ATVs are steel and plastic. Since the Yamaha ATVs motor factory is located in U.S., it is better that weto focus on the steel price in United States. According to the market, the steel price increased 10% from January to July this year because of the panic of short supply. According to the announcement released by the World Steel Association on October 7, the demand of United States steel is expected to increase 3.0% in 2014. (Paulo, 2013) The price will increase based on the price elasticity of demand theory (Willer, 2013). Based on Plasticker (2013), evidence shows that standard plastics prices have risen for the fourth time in a row. The supply of goods was satisfactory, but plastic producers are trying to push up the price. This price trend may drive the price of plastic up in 2014. Overall, all thise information implies that the costs of ATVs will increase in 2014 due to increasing labor costs, steel prices and plastic prices.

I. Strategic Positioning in This Market

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Yamaha positions itself in a narrow market and with a low cost strategy. Yamaha targets its customers at an age group of 25 to 35 . The market is narrow because customers between the ages of 25 and 35 are a small group compared to the huge population of other age groups. According to Porter’s Five Forces analysis, the technology and design are easy to imitate and develop which makes it hard difficult for Yamaha to differentiate its products. Yamaha has been focusing on cost reduction in recent years because of the falling demand of motorcycles in Europe and inventory adjustments in Indonesia and Brazil. Due to those falling demands, the 2012 sales and net income of Yamaha have decreased compared to 2011. (See Appendix 1).
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During the fiscal year of 2012, Yamaha’s total sales were 1,207,675 thousand yen compared to 1,276,159 thousand yen in fiscal year 2011. The sales for the worldwide market are decreasing except in Japan and North America. Yamaha targets a low cost strategy to increase its profit margin. At the time of implementing its low cost strategy, Yamaha did not reduce the cost of technology development. They also provide luxury products to meet their special demands. In the 2013 10k, Yamaha mentioned “acquiring new customers by completing the development of Z:TA which achieve the top levels of high speed performance” Additionally, Yamaha is developing new low-fuel consumption and low-cost engines to acquire new customersAccording to the analysis above, Yamaha focuses on cost reduction and product differentiation that causes the loss of sales and a bad financial condition. The loss of sales and bad financial condition reelects that Yamaha is stuck in the middle. The trend of ROA, ROE, ROI, and EBITDA Margin has decreased over the past five years, particularly from 2011 to 2012. (Yamaha Motor Co., Ltd, 2013) (See Appendix 2)
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Options Option 1 – Maintain Status Quo. Advantages: Yamaha Motor Co, Ltd can maintain its advantages to survive in the ATV industry. Strong after-sale service and maintenance is one of Yamaha’s advantages. The experiences of after-sale service and maintenance could lead to increased sales. The advantage of excellent branding, advertising, and global distribution can also help Yamaha to survive the competition. (Yamaha Motor Co., Ltd, 2013)Yamaha is ranked 21st with the brand value of $760 million in 2012 (Interbrand, 2013).

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Yamaha Motor Co, Ltd has the capital of 85,688 million yen (Yamaha Motor Co., Ltd, 2013). Their great customer loyalty could lead Yamaha to build high consumer switching cost. It would be difficult for competitors to attract Yamaha’s loyal customers. Disadvantages: Maintaining the status quo does not change Yamaha’s bad situation with respect to sales and financial performance. As mentioned above, a 5.4% decrease in 2012 sales compared to 2011 makes Yamaha lose its market share Although the primary reason for decreasing sales is falling demand in Europe and Brazil, maintaining the status quo does not improve Yamaha’s sales. In addition, “there was 45 billion yen in negative impact of exchange rates due to yen appreciation” Yamaha was doing worse on financial management. Its ROA, ROE, and ROI had decreased significantly from 2011 to 2012. (Yamaha Motor Co., Ltd, 2013) (See Appendix 2) Due to their bad condition on sales and financial performance, maintaining the status quo does not help Yamaha address this bad situation. It could lead Yamaha to a worse condition if Yamaha does nothing to improve its situation. Option 2 – Cost Reduction Advantages: Yamaha began to focus on a cost reduction strategy since it had been suffering a loss of sales and net income. In the Yamaha Motor Co, Ltd 10K, it mentioned “cost reduction activities reached that medium-term goal of a total 75 billion yen.” (Yamaha Motor Co., Ltd, 2013). Low costs can help Yamaha set up competitive prices for attracting more consumers. Due to the falling demand of 9.5% in the future mentioned in the cost and demand section, cost reductions may let Yamaha reduce product prices. (Yamaha Motor Co., Ltd, 2013) This may help Yamaha offer lower priced products in order to attract price sensitive consumers. In addition, Yamaha

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can switch its strategic positioning towards cost leadership, which can let Yamaha get out the situation of being stuck in the middle. Yamaha cannot gain profits any longer by focusing on both product differentiation and cost leadership. Yamaha needs to move quickly from differentiation to cost leadership. Disadvantages: Yamaha may not move quickly enough from differentiation to cost leadership. This may result in Yamaha continuing to lose sales and net income in the short-term. The cost reduction strategy may damage Yamaha’s brand name because cost reductions may lead to lower product quality. This could tarnish their reputation within the ATV industry. The loyal customers who seek high performance products would suffer due to the lower quality products. This could lead to customers switching to the competitor’s product. Yamaha may avoid such damages to its brand name by not reducing the raw materials and technology development but such expenses could be reduced: “transportation expenses, salaries, provision of bonuses, provision of product warranties, provision of retirement benefits, and provision of allowance for doubtful accounts” (Yamaha Motor Co., Ltd, 2013). Option 3 – Limit Production to Market Ability Advantages: Due to the worldwide demand prediction of a 9.5% decline, Yamaha may limit production to avoid the loss of sales and inventory storage expenses. The European market has a significant reduction in demand which is the primary reason for weak sales of Yamaha from 2011 to 2012. (Yamaha Motor Co, Ltd, 2013). Limiting production can help Yamaha reduce their costs and the damage from falling demand. There are many uncertainties in the future demand in the European market. As such, Yamaha should focus more on the Asian and North
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American markets because of the significant sales that come from those two areas (See Appendix 3). Disadvantages: Limiting production to match current market demand levels may work in the short-term, especially with continually decreasing demand in the European market. It would be bad for Yamaha in the long-term because limited production may cause delays in increasing productivity in the future. The Asian and North American markets are growing faster than the other areas, and Yamaha should increase its productivity to meet the increasing demand in the future (Yamaha Motor Co., Ltd, 2013). A large corporation like Yamaha, which has economies of scale, is able to take advantage of lower marginal costs. Limiting production can also dilute their economies of scale, which could lead to higher marginal costs.

J. Recommendation

According to the overall evaluations on these three options above, option two is considered to be the best recommendation. Yamaha’s primary issue is being stuck in the middle. Option two can help Yamaha focus on cost leadership. The other two options can also help Yamaha increase profits in the short-run but they do not offer long-term solutions for Yamaha.

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REFERENCES

Annual report 2012. (2012). Yamaha-motor. Retrieved from http://global.yamahamotor.com/ir/annual/ Besanko, David, David Dranove, Mark Shanley, Scott Schaefer. Economics of Strategy 6th edition. Hoboken: John Wiley & Sons, 2013. Print. Energy and Environmental Affairs. (2013, November 26). Heating Oil Price Surveys for November 26, 2013. Retrieved from http://www.mass.gov/eea/energy-utilities-cleantech/home-auto-fuel-price-info/heating-oil-price-surveys.html Fact book 2013. (2013). Yamaha-motor. Retrieved from http://global.yamahamotor.com/ir/annual/ Fishpond. (2012, Dec 3). Retrieved from http://www.fishpond.com/Toys/NewRay-132-DieCast-ATV-

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Ride/0879093003454?utm_source=googleps&utm_medium=ps&utm_campaign=US&gc lid=CMOLn-jjlLsCFe3m7AodFTcA5A Giacchino, J. (2007, April). Beyond the corporate juggernauts. Retrieved from http://www.atvsource.com/articles/articles/2007/040307_otp_april_beyond_the_corporat e_juggernauts.htm Houser-Racing. (2012, Dec 3). ATV Heel Guards. Retrieved from http://www.houserracing.com/products/view/atv-heel-guards-yamaha-raptor-700-2006-14-pro-bouncesuspension-foot-peg Mergent Online (2013). Company Financials. Retrieved from http://www.mergentonline.com/companyfinancials.php?compnumber=16060 Miller. J. W., (2013) Rise in Steel Prices Alarms Buyers. Retrieved from http://online.wsj.com/news/articles/SB10001424127887324260204578583963765249172 Monthly Economic Review. (2013, November 12). Monthly Economic Review of Commodity Markets: November 2013 Update. Retrieved from http://www.portal.euromonitor.com/Portal/Pages/Search/SearchResultsList.aspx Motorcycle USA. (2013). 2014 Yamaha Raptor 700R SE. Retrieved from http://www.motorcycle-usa.com/28147/Buyers-Guide-Specifications/2014-YamahaRaptor-700R-SE.aspx NCSL. (2012, Jul). All Terrain Vehicle (ATV) Safety Laws by State. Retrieved from http://www.ncsl.org/research/transportation/all-terrain-vehicle-safety-laws-by-state.aspx Paulo, S. (2013, October 7). Worldsteel Short Range Outlook. Retrieved from http://www.worldsteel.org/media-centre/press-releases/2013/worldsteel-short-rangeoutlook.html

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Plasticker. (2013, October). Market Report Plastics- October 2013. Retrieved from http://plasticker.de/preise/marktbericht2_en.php?j=13&mt=10&quelle=bvse Raptor-Forum. (2007, Oct 10-2012, Dec 3). Dealership Grades. Retrieved from http://www.raptorforum.com/forums/72-raptor-700-discussion/20470-dealershipgrades.html SVIA. (2012, Dec 3). Model State ATV Legislation. Retrieved from http://www.svia.org/Relations/Legislation.aspx The Economist. (2013). If the European economy is so shaky, why is the euro so strong? Retrieved from http://www.economist.com/blogs/economist-explains/2013/11/economistexplains-10 The Economist. (2013). A rickety rebound. Retrieved from http://www.economist.com/news/leaders/21583686-global-economy-gaining-momentumonly-america-acceleration-likelylast?zid=295&ah=0bca374e65f2354d553956ea65f756e0 United States Department of Labor. (2013, November 19) Employment Cost Index news release text. Retrieved from http://www.bls.gov/news.release/eci.nr0.htm Wal-mart. (2012, Dec 3) Retrieved from http://www.walmart.com/ip/25414432?wmlspartner=wlpa&selectedSellerId=3&adid=22 222222227018274581&wl0=&wl1=g&wl2=c&wl3=32910251076&wl4=&wl5=pla&wl6 =51043536636&veh=sem#Item+Description Who has the best 4-wheel drive system? (2012). atvmag. Retrieved from http://www.atvmag.com/article.asp?nid=2357

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Yamaha Motor (2012, Dec 3). 2014 Raptor 700R SE. Retrieved from http://www.yamahamotorsports.com/sport/products/modelspecs/543/0/specs.aspx Yamaha Motor (2012, Dec 3). Paving the Road to Yamaha Motor Corporation, USA. Retrieved from http://www.yamaha-motor.com/corporate/foundingHistory.aspx Yamaha Motor (2013, November 15). CSR 2012 Report. Retrieved from http://www.yamaha.com/about_yamaha/csr/common/pdf/csr_repo2012-e.pdf Yamaha Motor (2013, November 15). Initiatives for a Better Work-Life Balance. Retrieved from http://www.yamaha.com/about_yamaha/csr/workers/employee_worklife/ Yamaha Motor. (2013, November 15). Corporate Philosophy. Retrieved from http://global.yamaha-motor.com/about/philosophy/ Yamaha Motor. (2013). u.s.a. Retrieved from http://www.yamahamotor.com/corporate/home.aspx Yamaha Motor Co., Ltd. (2013) Company Profile. Retrieved from http://biz.yahoo.com/ic/54/54040.html Yamaha Motor Co, Ltd (2013). 10K-annual report 2013. Retrieved from http://www.mergentonline.com/companyfilings.php?compnumber=16060

Yamaha Motor Corporation in Cypress, California. (2013). Findthecompany. Retrieved from http://companies.findthecompany.com/l/9751329/Yamaha-Motor-Corporation-Usa-inCypress-CA Yamaha Promotions. (2012, Dec 3). Retail Finance Offers. Retrieved from http://yamahamotorsports.com/sport/webpromo/sportatv.aspx Yamaha revs your heart. (2013). Retrieved from http://www.yamahamotorsports.com/

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Appendices

Appendix 1

(Yamaha Motor Co, Ltd, 2013).

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Appendix 2 Yamaha Motor Co., Ltd. (Japan) (NBB: YAMH F) Exchange rate used is that of the Year End reported date Profitability Ratios ROA % (Net) ROE % (Net) ROI % (Operating) EBITDA Margin % Calculated Tax Rate % Liquidity Ratios Quick Ratio Current Ratio Net Current Assets % TA Debt Management LT Debt to Equity Total Debt to Equity Interest Coverage Asset Management Total Asset Turnover Receivables Turnover Inventory Turnover Accounts Payable Turnover Property Plant & Equip Turnover Cash & Equivalents Turnover Per Share Cash Flow per Share Book Value per Share 12/31/20 12 0.8 2.54 3.12 1.98 57.83 12/31/20 12 0.75 1.5 20.33 12/31/20 12 0.54 1.06 58.3 12/31/20 12 1.29 6.98 4.35 10.19 4.62 10.03 12/31/20 12 120.01 978.57 12/31/20 11 2.87 9.72 9.27 4.7 46.34 12/31/20 11 0.8 1.53 21.63 12/31/20 11 0.58 0.98 12/31/20 11 1.36 7.59 4.68 10.3 5.12 7.53 12/31/20 11 358.51 887.89 12/31/20 10 1.86 7.52 8.49 4.47 56.35 12/31/20 10 1.05 1.75 28 12/31/20 10 0.84 1.18 12/31/20 10 1.32 7 4.57 10.97 4.92 7.55 12/31/20 10 677.99 890.46 12/31/20 09 (20.1) (71.22) (9.23) (15.31) EBT