Term Paper on "Strategic Management in Global Car Industry"

Term Paper 11 pages (3645 words) Sources: 20 Style: Harvard

[EXCERPT] . . . .

automotive industry is shaping into one of the most controversial and dynamic industries in the current world market. The current financial troubles of Ford and General Motors, the two most dominant American automobile brands, have many experts in the field confused by the general direction that the global market will move towards. The heart of the transformation within the global industry is focused not exclusively on how automobiles work and perform, but rather how companies define themselves in the modern era of vertical and horizontal supply chains. The American reliance on Fords original "product-push" model of assembly line production has prevailed for decades, but is no longer a valid model in an era where production plants in Asia are both cheaper and more efficient. In the United States, the strategy of Ford transformed the automotive industry in the past century into three or four central manufacturers. However, the changes to the automotive industry and the way companies define themselves have shifted largely due to rising competitive forces such as the continuing surge of Japanese automobile companies. It can be accurately stated that the traditional model of the automobile company is under direct assault. The new model of automobile manufacturing is about managing relationships and creating a web of interconnected supply chains that runs efficiently to produce the best vehicles. Unlike traditional approaches to automobile conception and manufacturing, each aspect of the new automotive industry is a separate but cohesive unit within the supply chain. Some industry commentators of the modern era have even speculated at creating a "virtual" automotive company based upon the premises of Dell and Gateway. In the 21st century, the most important lesson is that information technology and the ability to rely on supply chain management has allowed small, nimble and decisive companies to outpace the titans within the automotive industry.

The strategic management of the car industry has evolved as well, because the primary focused has shifted from managing internal revenue production and consolidation of business operations and centered on the forces of globalization. The majority of companies within the industry have attempted to downsize its existing production capability to create more agile businesses that can operate on an independent level while staying true to a unique centralized corporate strategy. Another important aspect of current strategic management decisions making is how to create dramatic product differentiation. As the competition for sophisticated customers increase, the need to create unique products that enjoy popular brand recognition becomes a crucial aspect of developing a profitable company. The combination of product development and syncing with existing supply chains and the formation of new alliances is another critical step towards developing a more cohesive strategic plan. The major advantages of developing more decentralized companies are that they can act in a nimble way to respond to the constantly shifting demands of the new global industry. Simultaneously it has changed how we view the social and political implications of the global supply chain and caste off our traditional reliance on physical plants and locales within the marketplace. At the same time however, it has in part created a loss in identity with many companies, as the decentralization and push towards globalizing supply chains have caused many corporate giants to forget their product branding and unique corporate visions.

The competition within the automotive industry has intensified in the past few years because more brands and major corporations are rising from previously undeveloped nations. The rise of India and China into the world economic scene has dramatically shifted and widened the competitive landscape. Several issues have changed within the competitive environment. The critical consideration in today's competitive landscape is not production and manufacturing, but quality design and brand recognition. Supply chain management has largely made the question of "not enough production" a null factor in the competitive landscape; rather the most important question is whether brands can have an enduring customer base. The greater competition has made companies realize that they must not only place much greater emphasis on quality but also on branding. The competitive force of the Japanese automotive companies and the rising stars of Chinese and Indian automakers means that traditional powerhouses need to stop relying on their formidable brand recognition and turn to creating unique and technologically superior products. Overall the industry is in a transformative period where we will see a much greater change in the current industrial standings among automotive giants.

Macro:

macroeconomic perspective of the automotive industry entails conducting a PESTLE analysis of the competitive landscape and industry itself. The below will closely examine the factors within PESTLE analysis. From a political perspective, several frontiers have changed that influence the current automotive industry. Within the American market, former restrictions placed upon Japanese automotive companies in order to protect U.S. interests have been reduced or simply done away with. As a result, Japanese companies Toyota and Honda are set to become the largest producers and sellers of automobiles within the United States. Political protection between the U.S. And Japanese automotive giants have been an extremely complicated issue. The central policy of the U.S. government has been to attempt to restrict the inflow of Japanese automobiles until U.S. companies can gain a foothold within the Japanese market. However, the inability of U.S. corporations to capitalize on such opportunities within Japan has meant an even wider trade deficit than previous decades. With the lifting of such political restrictions, U.S. companies now have no protection against the better quality, and more efficient Japanese competitors and this has greatly decreased the sales and mobility of U.S. automakers. On a worldwide scale, greater participation within the World Trade Organization and cooperative unions such as the EU has transformed import/export policies that dramatically affect the automotive industry. The ability of many previously inaccessible markets such as China, has allowed automobile makers to change their approach to international sales. At the same time, developing nations are beginning to use their fundamental resources of limitless manpower and production efficiency to attempt an entrance of larger domestic markets such as the U.S. And Europe.

Economic factors that change the global industry have had both national and international implications. Within the United States, an economy ravaged by ever increasing gas prices as well as greater shifts within GDP growth and decline has had a profound effect on the automotive industry. Americans, who helped GM increase their SUV sales by more the 25% from 1999 to 2002, are now realizing the need to buy more gas efficient vehicles. The severe economic fluctuations of the last five years make consumers wary of spending significant money on luxury brands and SUVs. As a result, companies such as Honda and Toyota have reaped the benefits of technology investments in hybrid and electronic cars. Both companies have seen a combined sales increase of their hybrid brands by 54% in the last year. Toyota will become the official leader in automobile manufacturing in the United States by the end of this fiscal quarter. Economic trends have moved towards competition over economy class cars and focused within energy conserving and fuel efficient brands. On an international level however, the competitive landscape is much different than the United States. The general increase in developing nation's economies has meant that more countries and more consumers demand automobiles than ever before. China has increased its automobile to population percentage by nearly 24% in the past three years. Other rising nations in Eastern Europe and India have made a greater global push for international divisions of industry giants. Companies that can take advantage of the general upswing in the world economy are the ones who have nimble and decentralized infrastructures that can quickly develop organically within their host country.

Sociological factors have also been profound within this market, primarily the new focus on energy conservation and environmentalism. The prospect of global warming and the role that automobile population has played in global warming has changed both American and worldwide perspectives. A new social movement towards more environmentally friendly vehicles and transportation mechanisms has profoundly changed the corporate goals and identities. Primarily beneficiaries of the social trend are the companies that have been working on alternative energy sources such as electric power vehicles and hybrids. While other major manufacturers such as Ford has placed their bets on ethanol powered vehicles. Companies that previously relied on large trucks and SUVs for their sales have seen a rapid decline in those product lines largely because people are more focused on environmentally safe vehicles rather than the flash and glamour of larger vehicles.

Technology plays a crucial role within the developments of the industry. Japanese automakers Honda and Toyota have been developing hybrid technology and exploring other alternative fuel sources since the late 1980s, and as a result, they have created the new class of efficient hybrids that runs as well if not better than gasoline powered cars but are both environmentally friendly and extremely fuel efficient. At the same time, automotive design and new technology increases have created greater sophistication… READ MORE

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