Consumers at the same time are much more knowledgeable of technology factors within the industry and thus demand much more from their cars than in previous generations. Which means that automobile companies must simultaneously focus on producing efficient vehicles, but also provide all the new commodities that make the driving experience safer and more entertaining at the same time?
Finally, legal aspects of the worldwide landscape have molded the automotive industry primarily through the breakdown of barriers. The greater globalization seen in contemporary world politics means that standards across countries are becoming the same, which makes it much easier for competitors to enter foreign markets. Emission standards, gasoline standards, and general safety standards have all become much more uniform from country to country, and this helps automobile companies to manveur on the global stage. Traditional methods of import/export laws to protect domestic corporations are much a thing of the past and the inter-dependence between nations is largely why current develops still work within the established legal framework.
Current strategic management of the automotive industry focuses on how to breakdown a company's core strengths to focus on specific target markets. Traditional strategic management decisions have focused on diversifying portfolios so that a company is entrenched in as many markets as possible and thus reaping revenue in every target market. However, this has changed in the current landscape, primarily because small and nimble companies that target specific segments of the industry are outclassing the giants of the industry. GM is an excellent example in this case, a corporate giant who has vehicles from high end luxury brands such as Cadillac and Buick as well as very low end economy cars such as Pontiac and Saab. Since its past strategic management decision was to diversify it has lost its brand integrity in many of these markets. Sales of Cadillac's have decreased almost 65% since 1990, largely because the brand has been associated with old-school redesigns rather than new innovations. Smaller brands within the market such as BMW, Ferrari and other high end luxury car companies have largely stolen this market share. The new era of strategic management entails that companies decentralize each division within their company into independent and largely autonomous units that can be agile within their particular market. Honda for instance, complete separates its Skyline and RSX division from its Accord brands in order to allow them to market, produce and develop their own innovations to stay competitive with top tier specialty companies.
Branding within this market is extremely difficult, because product differentiation becomes harder and harder with the number of new offerings in the market today. However, brand recognition and association has become the number one indicator of consumer purchases, outpacing quality and cost significantly. Today automobile companies brand themselves through a two tier system of both general corporate recognition and specific car recognition. The general branding of a company such as Toyota is a focus in innovation and efficiency, with a reputation for providing reliable long-term usage cars. Within this corporate branding however, there is a sub-layer of specific car branding such as the new Yaris chain, which has branded itself as fun and sporty cars that are both cheap, energy efficient and fun. The diversified approach to branding is a general practice within the industry; however it has often backfired on many companies. The association of luxury brands within Korean manufacturer Hondai, and its branding as a generally breakdown prone vehicles have caused their luxury brands to falter. The need to delicately balance the corporate brand and specific car brands is one of the strategic challenges of the new era.
In general an analysis of the marketplace shows that it is becoming more and more overcrowded with many different product lines and companies vying for an established client base. However on a global level the shift from emphasizing developed nations to developing nations has made the possibility towards increasing market share a reality for many struggling companies. The greatest challenge of the current marketplace is how to balance branding within established markets and create new branding techniques within developing markets.
Specific Companies analysis: General Motors and Toyota
The goal of all corporations is to understand its unique place within the Value system and its specific place within the value chain. In the case of GM, the automobile giant has gained dominance within the value chain system by taking on all aspects of design, production, and sales. The value chain within GM focuses on a central approach towards developing a cohesive and formidable value system. GM's chief strategy within the past five years has been consolidation. Its need is to focus on how to decrease inefficiency within their value system by looking at each value chain and create an easy and efficient supply chain management system. Their primary problem however is the inflexibility of each value chain component. All of their design phase components are centralized in three locations in the United States, manufacturing and executive offices are still primarily focused in the U.S., and each brand does not have its own executives, but are all part of a cohesive corporate strategy. As a result, value chains cannot operate efficiently because they are bogged down by the delay in central decision making. As a result the entire value system's effectiveness is eroded because response time is extremely slow. The value system of GM in fact is its greatest weakness, while other companies are becoming more flexible GM is attempting to consolidate and become more centralized in order to eliminate waste and inefficiency. Although this is a short-term solution in the long-term, they erode the ability of each value chain to manveur independently of each other.
In contrast, Toyota has taken a different approach to their value chain and general value system. They wanted to create a global value system where each individual value chain component are flexible enough to innovation and reflexively and adapt to their circumstances. They have in effect decentralized and focused on the specific value chains that are their core competencies. Development of technology for Toyota occurs all over the world, with laboratories and testing facilities on every single continent. They have diversified their value system to be spread across the entire breath of the world, but at the same time everyone maintains a unified vision of the overall corporate strategy of creating efficient, cheap and attractive vehicles. As a result, Toyota is much better positioned in the current market to accept the changes of the global industry than GM.
From a core competency perspective, GM's primary competency is in the sophisticated offerings of its heavy duty, truck, and SUV divisions. When the economy was thriving these three segments were outpacing other sectors significantly and thus GM sales were extremely profitable. However, recent draughts and a focus on economy and energy conservation segments have dried up GM's productivity. However, GM's core capacity and branding within the United States means that it can still command a significant market share. Therefore their current focus should be to maintain its brand and increase innovation and focus within the current sectors that are popular. Another important capability is their bet on ethanol fuel, which they believe is a better alternative fuel source than hybrid technology. If they can focus on this technological development use it to leverage the current market they have a chance of changing their current woes.
For Toyota, their core competency has always centered on creating relatively cheap, efficient and well engineered cars. This continues to be their primary focus, as seen in the release of the Prius and Yaris lines. Their current focus on hybrid technology as the bet for next generation energy source has turned into the right bet and since they as well as Honda have placed an investment of 10 years into this current technology they should continue to focus in on this factor in the years to come. Developing even better operating hybrid vehicles and injecting them into more luxury brands such as the Camry, Avalon and luxury brands will be one of the challenges and most profitable future prospects for Toyota.
Projections and Future emphasis:
In the short-term (next three years), GM's prospects for profitability are slim. They need to take several steps towards the right direction through a variety of factors. First they must decrease their reliance on local production and manufacturing supply chains, by outsourcing and off shoring their production plants to arenas where labor is cheaper and quality is increased. This is a step that GM has long attempted to avoid but as competition continues to take this path they need to do the same. Second, they need to make their corporate framework much more flexible by creating a better managed infrastructure. That means allowing greater independence for individual aspects within its values system such as design, manufacturing and sales. Third, it needs to realize the need to tap into the international market rather than attempting to maintain its place within the domestic market.…
Sources Used in Document:
Sturgeon, T. And R. Florida, "The world that changed the machine:
globalization and jobs in the automotive industry," final report to the Alfred
P. Sloan Foundation (Cambridge, MA, MIT, May 1999).
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