Globalization and competition in the international automotive industry

¶ … globalization increased and standards of living around the world went up and with the expansion of industrialization in many less developed countries around the world, the demands of the automotive industry around the world increased significantly. This resulted in a worldwide boom in the international automotive sector with many individual countries entering the global automotive market as potential producers. As a result, the international competition in the automotive sector grew more aggressive over a period of time.

The sharp increase in international competition in the automotive industry during the recent years and the fact that automotives are not a 'Fast Moving Consumer Good' made, the countries involve in automotive production realized the growing need to stay competitive. The need to maintain an absolute competitive advantage and constant innovation, research and development was inevitable. Moreover, the international automotive industry was dominated by a handful of big players of the likes of Ford and Toyota and therefore newer entrants and smaller players had to be careful in their short-term and long-term strategies in order to stay competitive and face the competitive pressures of the bigger and established market players. The main competitive advantage not only lied on strong brand positioning, quality management and innovation, but also on earning enough economies of scale so that the pricing strategies could made competitive in international market. The need to maintain increasing returns to scale and economies of scale became much more needed when the international automotive sector saw a sudden plunge in the consumer demands given the recent economic crunch that started in 2007 and is continuing to have its effects around the world.

While in the pre-recession time, the international automotive market was dominated by western players and Japan remained the only major player from the Asian side of the globe. However, the dynamics of the international automotive market evolved greatly especially during the post recession era with many other Asian markets emerging as strong competitive forces. The opportunities of low cost of production and lucrative consumer markets also attracted other western players to invest in Asian markets and many western players shifted their supplier base and in some cases even production plants in Asian region. According to the Asia Automotive Industry Yearbook, the year 2009 laid the foundation of a flourishing automotive industry in Asia with South Korea, Indonesia, China, India, Pakistan, Malaysia, Thailand and Vietnam being the key players in the market. As stated earlier, Japan has only been a major dominant Asian force in the west dominated automotive market (Abott, 2003). However, in the recent times, the researchers and industrial economists have seen South Asian countries as major emerging players, particularly eyeing China and South Korea. There are two primary reasons behind this paradigm shift in the automotive industry's focus from West to South Asia. The first reason is the fact that United States of America has lost its competitive advantage a great deal especially in post-2007. The increasing inflationary cost pressures triggered by sky rocketing oil and steel prices, and along with higher labor wage rates have taken the cake away from the United States of America as far as hi-tech industries and the automotive industry in particular is concerned. The European markets have also seen a similar trend line. On the other hand, not only the Asian markets, and South Asian countries in particular, enjoyed the edge of cheaper labor and lower raw material costs which resulted in an overall lower cost of production, but also enjoyed a strong government support at the policy making levels, with the respective governments giving special attention to assisting regional automotive industries and providing them exposure to the international markets.

While all the above mentioned South Asian countries enjoyed a booming trend in their respective automotive industries, what differentiated them with one another was their goals, objectives, strategies and the overall roadmap and approach taken towards the growth of their respective automotive industries. What was common and an important readon that enabled them to pose competitive threats to established bigger players. Despite of being newer and smaller in size, was the fact that their approach focused on specializing in specific types of automotives rather than going for massive diversification. Each of these countries carefully selected the market segment they wanted to play around by analyzing where they could have an absolute competitive advantage over other players. This paper aims at carrying out a comparative study of three Asian countries namely Malaysia, Korea and Thailand, which are being seen as emerging players in the international automotive industry in the recent times.

The Automotive Industry in Korea

International industrial economists and researchers have viewed Korea as having the potential of the second largest player in the international automotive market after Japan. According to the Asian Automotive Industry Yearbook of 2009, Korea aims at emerging as one of the top four automotive industry producing countries around the world. The Korean automotive industry already has two major international players namely KIA and Hyundai. Both these companies have greatly contributed in paving out export channels for Korean automotives in the International market. However, so far Korean automotives major dominance has been only prominent in other Asian countries.

The gradual up gradation in Korea's economic policy and the development of short-term and long-term strategies for the Korean automotive industry that aimed at creating a balance between domestic and foreign products have helped in prosperous growth of the industry. Moreover, following the Japanese model, Korea has also realized Europe as a potential lucrative market for Korean automotive sector and therefore shifted its focus towards increasing exports to Korean markets thus creating a greater domestic-foreign balance and resulting in making the automotive sector as a major contributor in the country's gross domestic product and balance of payment (Hyun, 2008). Moreover, unlike many other Asian players, Korea has a more diversified approach rather than a specialized one and it aims at exploring both the Mini Vehicles and Upper Class passenger markets. The SWOT analysis of the Korean automotive industry is given as follows.

Strengths

The strategy of global product acquisition has helped the Korean automot8ive industry to expand considerably in size especially in terms of capital employed.

Korea's penetration into newer international markets, and especially the European markets has helped in meeting the import pressures, mainly coming in from Japan, and creating a positive domestic-foreign balance.

The signing of major free trade agreements has helped Korea to gain access to more international markets along with cheaper imported raw materials thus resulting in reducing cost pressures that occurred due to expensive raw materials.

Korean manufacturer Hyundai enjoys market leadership in the domestic passenger car market with market share exceeding 47% after 2007 and profit levels increasing with more than 250%.

Weaknesses

The volatile commodity market on the international level and fluctuating prices of important raw materials such as aluminium, steel and oil is a major problem in maintaining stability in terms of cost of production.

The fact that many Korean automotive producers import a major part of their raw materials from a range of other countries and likewise export their finished products to many other countries creates problems in exchange rate stabilization. This problem has greatly increased recently after the volatility of international economy that resulted in increased exchange rate fluctuations around the world.

Hostile Labour union movements have created major issues in maintaining variable cost stability and smooth halt-free production.

Opportunities

Signing free trade agreements promises Korean automotive industry an exposure to newer international markets.

Greater international exposure providing opportunities to operate in diverse range of automotive sectors at the same time.

Stronghold in Asian markets and an increased market share in European markets provide string opportunities for risk diversification.

Threats

Major competitive threats posed by newly emerging Asian players especially India, China, Taiwan and Malaysia.

India's special focus in development of automotive industry with special focus on mini vehicles and India's technological partnership with international giants has greatly threatened Korea's dominance in Asian markets.

Threats

Aggressive competitive pressures from emerging Asian markets in terms of both technology and competitive advantage is creating hindrances in Thailand's way to emerge as a competitive international player.

Political instability causing hindrances in penetrating western markets due to uncertainities.

Automotive Industry in Malaysia

With a unique approach of making Malaysia emerge as an international export hub for worldwide automotive producers, Malaysia enjoys a potential for highly prospering automotive industry (Mohd Noor, Perumal & Hussin, 2010). The overall strategy revolves around attracting foreign investment from international automotive industry and providing a support and international market exposure to domestic manufacturers. The SWOT analysis of Malaysian automotive industry is discussed under the following section.

Strength

Rise in both B2B and B2C demand of automotive sector due to tourism being a major industry of Malaysia.

A unique strategy of making Malaysia an international export hub and meet the domestic demands by facilitating local producers thus keeping prices affordable for domestic consumers (Amrina & Yusof, 2010).

Increased duties on imported cars and reduced excised taxes on local manufacturers make domestic automotive industry a market leader within Malaysia.

Signatory of AFTA, a free trade bloc that makes access to cheaper imports and increased international exposure to potential export markets.

Weakness

Short-term unemployment generated due to increased trend of mergers and takeovers.

Opportunities

Free trade and foreign relations agreements signed with African countries means export opportunities in lucrative African markets.

Threats

Rapidly reducing regional demand in Malaysia's national car.

Emergence of China as a parallel export and transnational production hub.

Conclusion

While all the three countries have specialized focuses in their own arena's the South Korean automotive industry is the strongest one of all with highest potential to emerge as an international player and most competitive strategies that have long-term approach. Malaysia although has a highly innovative plan and also enjoys opportunities but there is still no long-term concrete plan to counter cost competition from India and China. Thailand is the weakest link among all three as its political instability creates immense uncertainties for foreign investors to show interest. However, Thailand can emerge as a potential market for autoparts if technological and political inconsistencies are removed.