The closing case examines the changes in Subaru’s competitiveness in the United States market based on currency fluctuations between the Japanese yen and the U.S. dollar. As most of its production is in Japan, any sales in the United States are influenced heavily by changes in exchange rates between these two countries’ currencies. In 2012, this manufacturing strategy was seen as a problem. However, as the Japanese yen began to depreciate versus the U.S. dollar, the prices for Subaru automobiles became more competitive and, due to the economies of scale achieved in its Japanese manufacturing operations, higher profit margins resulted. Still, Subaru acknowledges that the Japanese yen will appreciate again. So, the company has decided to expand its operations at its sole plant in Indiana by March 2017.
QUESTION 1: Why was Subaru’s manufacturing strategy of remaining mostly in Japan seen as a liability in 2012?
QUESTION 2: Explain how this liability became an asset as the Japanese yen began to depreciate versus the U.S. dollar.