Analysis of Global Automobile Market

Analysis of Global Automobile MarketEXECUTIVE SUMMARYThe purpose of the report is to assess the recent strategies sedulous by worldwide go organisations amidst 2007 and 2010 based on secondary data and published press. nerves thereafter refer to globose machine organisations. This report searchs the physical process of reconciling dichotomies at Honda Motors Corporations (HMC) in terms of its strategies and core pull back donces. Several theoretical frameworks were derived from related literature as a guide to analyse and integrate applicable elements from stemma train and corporate level strategies application.The roles on mergers and acquisitions (MA) applied in the global automobile industry be then discussed. This section is structured as describes part 1 reveals MA in relation to too much debts and risk of loser part 2 describes MA as a corpse to explore potential for product synergy and part 3 illustrates MA as means to access to clean technologies and emerg ing groceryplaces.This report examines the corporate friendly debt instrument (CSR) practices initiated by the organisations and its impact on the financial and non-financial performance. The report ends at discussion the Western and Nipponese leadership used by the global automobile organisations and their suitability.INTRODUCTION OVERVIEW OF GLOBAL AUTOMOBILE INDUSTRYThe automobile industry can be divided into three categories auto parts vendors, automobile producers and dealers. The global automobile securities industry has been ache dominated by Western manufacturers such as command Motors, Chrysler and Volkswagen in 1955 followed by eastern automobiles manufacturers Toyota, Honda and Nissan since 2005. In 2009, Toyota was the worlds leading simple machine manufacturer with approximately 15.3 percent market share, Volkswagen 13.1 percent and pass over approximately 6.9 percent market share (Datamonitor 2009).Recently automobile manufacturers in ariseing countries s uch as Hyundai, Tata and Geely have increasingly become vital players in the automobile market, Hyundai is now one of the significant players in the United States market (Fetscherin and Toncar 2010) whereby Tata and Geely have begun to take ask at developed country automobile markets and intend to compete in the global automobile market (Fetscherin and Toncar 2010).The 2008 global financial downturn had negatively impact the automobile industry into crisis olibanum many a nonher(prenominal) organisations were encountered losses and bankruptcy. Nevertheless, there were four outstanding organisations recorded remarkable profit during this turbulent period Volkswagen, Honda, Hyundai and BMW (Appendix 1). Forecasts predict that the global car industry will be worth $1,611 billion by 2014 with the volume of 66.2 million units (Datamonitor, 2009).HONDA STRATEGY AND MANAGERIAL DICHOTOMIESHMC established in 1948. Honda develops, manufactures and markets small(a) habitual purpose engine s and scooters to specialty swashs cars, had earn an outstanding reputation from customers worldwide. Honda has grown to become the worlds largest motorcycle manufacturer and one of the leading automobile manufacturers. There are seven telephone circuit units in HMC (Figure 1).Figure 1 Honda SBU.jpgHonda business level scheme versus corporate level strategy in global context personal line of credit level strategy refers to the way HMC competes in an industry which it is located. ostiarius generic strategies framework had been employed to examine apiece Honda strategic business units (SBU) (Figure 2).Figure 2 Porter generic.jpgHonda sets out cost leadership strategy to produce an urban car with fuel efficient feature, Honda metropolis, a successful model had reflected Hondas innovative and quick chemical reactiveness to market admit on inexpensive and fuel efficient (Nonaka 2007). Honda enjoys the cost advantage to produce and market its Hero Honda motorcycle in India by gus tatory perception to access to raw heartys and efficiency of occupation capability (Ramarao 2009). Honda continuous seeks for cost drop-offs to agonistical daub.Differentiation involves offering a unique product with special singularity however the selling price may not be low (Fitzroy and Hulbert 2005) Honda created Acura series to isolated its common automobile ranges. Acura is a higher range to compete with luxury category, i.e. Toyota Lexus. Honda Acura differentiates itself from product features and engine performance. Honda produces a series of scooter range from 50cc to 125cc to meets different demands for different markets (HMC 2009). Honda launched specialty engines GX160, GX200 and GX390 for better handling and durability competent for long tail boats which are common water transportation in Asia (HMC 2009). Honda Insight, a hybrid vehicle that incorporated a compact and lightweight hybrid system to offer fuel economy while maintain the pleasure of driving (HMC 2009 ).Besides differentiation strategies, Honda performs healthful in its private jets, ATVs, watercrafts, outboard motors and jets. Honda differentiates focus on dual clutch transmission and water cooled engines in its FourTrax Rancher ATVs (HMC 2009). Honda started Hondajet since 2006, the private jet featured by HF120 compact turbofan engine for low emission where the firstly delivery is expected in 2011 (HMC 2009).Corporate strategy is the future organisations directions against resources possessed by the organisation (Lynch 2000). Corporate strategy links organisations internal resources and the companionable frugal environment that it operates (Lynch 2000). HMCs sense of purpose is to striving to be a company society wants to exist (HMC 2009). In view of intense competition (threats) and strong demand (opportunities) from HMC operating environment (Figure 3), HMC had implemented some value added corporate strategies.Figure 3 Corporate strategy.jpgProduct diversification concer ns an elaboration of product range that Honda supplies. Honda drawn-out its product range from light truck to compact sedan cars. In North America, HMC introduces Pilot, Acura TSX and Acura TL to meet the different market requirements (HMC 2009). HMC broaden its range to launched Honda City in Asia outside Japan as the trend towards driving smaller cars accelerated along with the increase in fuel prices (HMC 2009).Vertical integration is an expansion of range of business related activities that HMC encompasses (Fitzroy and Hulbert 2005). Honda opens up financial services division to lease their automobiles and services centres for pre and after gross revenue services to strengthen its put uping position as one stop vehicle provider.Geographical diversification is an expansion to wider geographical areas mainly to create additional market share or obtaining competitive advantages. HMC has a global ne devilrk of 396 subsidiaries and 105 affiliates in more than five regions and 160 c ountries recorded 3.5 million units automobiles sales in 2009 (HMC 2009). HMC established its manufacturing plants in discordant countries to support domestic demand rather than manufacture in Japan and trade, this will help in shorten the delivery lead time and bonus in domestic assembly.Successful organisations must outgrow their initial scope of products and geographical areas (Fitzroy and Hulbert 2005). Horizontal integration refers a diversification into different industries. Besides automobile, HMC broadens its business into different industries i.e. aviation business, solar cell business and household cogeneration units (HMC 2009).Honda product-related core competencies versus process-related core capabilitiesIn practice, HMCs capability is as the main drivers for its shareholder values. Honda started with motorcycle business had move on to engine business and the most successful automobiles consists of 77 percent of its revenue. HMCs success underlying its core competence in engines design allows HMC to develop more products i.e. lawn mowers, motorcycles, automobiles and private jets (McGee and Thomas 2007).Substantial increase in fuel price, mod customer preferences and spending patterns are a significant momentum to the price model and value proposition changes whereby consumers emphasize on good price for reasonable quality (Giesen et. al. 2010). As part of corporate strategy, Honda enhances its Research and Development (RD) peculiarly in safety technologies to help reduction on the risk of injuries to passengers and pedestrians from car accidents and fuel efficient cars, i.e. Honda Freed and Honda City.Honda recognises the rational to develop non-pollutions product in the first property than to clean up later. The electric car demonstrates a technological solution for the air pollution caused by automobile emission (Bernabo et. al. 2009). However, due to the charging centre constraints and due date of the power supply capacity for longer jour ney, HMC focuses on its hybrid car Insight to meet the demand.Lean management focuses on eliminating waste (non-value adding activities) throughout HMC achievement systems (Chen et. al. 2010). By selective share of design education, HMC can focus resources and competencies on a limited set of innovative ideas and reduce their direct costs for innovating many of the components in their products (Chen et. al. 2010). A safety-induced crisis causes obvious problems for a brand like Honda which pride itself on reliability and the promise to deliver the power of dream(Banks 2010).HMC need both vendors and dealers to make out the complicated fabrication processes and reaches end consumers. In contrast to many competitors, HMC realises the importance of turning vendors into partners, loop the vendors into product design and development to shorten both new product lead time and reduce overall cost concerning the inventory holding (Nguyen and Slater 2010). The vendor development programme s include joint improvement, information sharing an updates, offer assistance to lift up vendors technical capabilities (Nguyen and Slater 2010). i.e. HMC make use of its vendor network to expand low price components accessibility in Vietnam had considerable reduce HMC production cost thus selling price (Oh and Rhee 2010).HMC factory networks operate the same way so each is able to make any vehicle in the product range according to market demand. This gives the company tremendous flexibility, efficient logistics to enhanced its manufacturing ( economist 2003). HMC installed special data systems in each of its factories to monitor weather forecasts to allows manager to predict bad weather which may affect deliveries so they can decide the stock up level to maintain material shortage (Economist 2003).To enhance the dealers ability, HMC trains and develops its dealer networks with operating procedures and policies in setting up the showroom, merchandising and service management (Oh an d Rhee 2010). Honda Vietnam strict controls over vendors to ensure changeless and good quality supply (Oh and Rhee 2010).ConclusionThe analysis shows the density of HMC in managing its global organisation. Business strategies and corporate strategies are in different dimension just now intimately link to each other, HMC needs to understand the external context of business when develop business and corporate strategies.HMC strengthen its production efficiency, flexibility and sales capabilities in various business units to meet the demand for cost effective products at the same time improve its corporate structure towards more compromising and dynamic to meet customers demand, business environment a society as a whole.There is no single outdo strategy applied for all products, Honda had demonstrated fitted thinking in developing suitable strategies for its products in different geographical areas.THE ROLE OF MERGERS AND ACQUISITIONSMergers and acquisitions act as a strategic who reson to obtain wider market share and create synergies-improvements in competitiveness, customer value or product innovation that can be achieved by integrating two entities (Gadiesh et. al. 2001, Thompson et. al. 2005).The global automobile business faces severe challenges with reduction in sales and intense competition and opportunities in emerging markets, such as China and India. Network-level strategies is expedient in turbulent and growth markets yet an organisation had limitations access or unable to pursue that competition by on its own (Cools and Roos 2005). Boston Consulting aggroup (BCG) matrix was used to analyse global automobile organisations positions (Figure 4).Figure 4 BCG.jpgMA in relation to too much debts and risk of bankruptcy star of the most important factors in mergers and acquisitions is debt and bankruptcy during recession (Cappell 2010). Organisation fall in BCG Dog category (Figure 4), i.e. Volvo, General Motors and Ssangyong are forced look for suitab le partner to sustain its limited market share. A research carried out by Ostermann and Neal (2009) reveals that there were 25 automobile vendors are in the high debt and bankruptcy risk (Figure 5).Figure 5 25 Bankruptcy.jpgIf a business unit no longer generate positive returns on investment for the organisation without commodious investment, some organisation opt trade off the business unit and exit the industry (Lynch 2000). Ford Motor sold Volvo to China Geely at US$1.8 billion as part of Fords strategy of exiting European luxury lines to focus on Fords brand (Starbiz 2010).In the scramble to swap gas guzzlers for smaller vehicles thus reduction in use vehicle residual value forcing General Motors finance arm into huge losses on cars returned after leased (The Economist 2009).Ssangyong, formerly controlled by Chinas SAIC Motor Corporations was under bankruptcy protection in early 2009 due to cash shortage crisis to be acquired by Indian largest sport utility vehicles manufacture r, Mahindra (Bloomberg 2010). Mahindra gives Ssangyong financial supports, engineering and sourcing synergies (Bloomberg 2010).MA as a strategy to explore potential for product synergyTo response to the zero CO emission, BMW, Daimler and General Motors formed an alliance in 2005 to develop hybrid vehicle technology. The ultimate solution to zero carbon dioxide emission is electric cars (Bernabo et. al. 2009). Nissan sees future trends towards electric car however electric cars design is highly challenging thus Nissan joint venture with NEC Tokin for synergy where NEC Tokin focuses on cell technology and electrode manufacturing so Nissan can concentrate in mass production (Taylor III 2010).Automobile organisations are focused on potential partners technological ability than cost savings achievement (Cappell 2010). PSA Peugeot produces diesel engines with Ford Motor ( pecuniary Times n.d.). Ford Motor and Fiat share a manufacturing plant in Tychy, Poland to produce Ford smaller car, K a and Fiat 500 (Financial Time n.d.). Daimler announced strategic partnership with Renault and Nissan to build small cars, engines and van together (Financial Times n.d.).In addition, as blackjack on developed country manufacturers increases to reduce costs, they might look to China as sources of inexpensive manufacturing and might increasingly manufacture their cars in China and export them to developed countries (Fetscherin and Toncar 2010). General Motors, Ford and Chrysler are currently producing cars in China in joint ventures with Chinese manufacturers (Fetscherin and Toncar 2010).Many family-owned organisations i.e. PSA, BMW and Fiat are reviewing their portfolio and seeking restructuring alliances to write down cost in part purchase and spreading research and development cost however subject to Europe Union competition ruling (Czinkota and Ronkainen 2001).MA as means to access to new technologies and emerging marketsMany organisations have responded to globalisation by loo king at joint ventures with international partners when they needed to link a technology gap (Czinkota and Ronkainen 2001). A survey carried by KPMG in 2009 shows 85 percent of the automotive senior executives presumed new technologies is an influencing issue in global automotive industry (Chappell 2010). PSA Peugeot Citroen joint ventures with Toyota to produce small cars in the Czech Republic for achieve economies of scale (Financial Times n.d.). Chrysler builds minivans for Volkswagen in Winsor, Ontario since 2008 (Financial Times n.d.).traditional automobile markets are still expanding but more importantly the emerging markets in China, India and Korea are expanding rapidly likely to enter the US automobile market (Fetscherin and Toncar 2010). Network level strategy plays an important role to uplift the competitive advantage to compete in automobile industry, especially Chinese automotive manufacturers who follow the footsteps of the Western, Japanese and South Korean car manu facturers. China automobile manufacturers will aggressively enter the US market by either exporting or by building their own production sites in the USA (Fetscherin and Toncar 2010).The implication of MA is to reduce threat while simultaneously capitalising on emerging market growth (Gill 2008). Acquisition of Ssangyong by Mahindra gives Mahindra an access to distribution networks of 1,300 dealers outside South Korea and Russia automotive market where previously Ssangyong exports vehicles (Bloomberg 2010).ConclusionMergers and acquisitions had been widely practised in automotive industry due to the automotive manufacturing investment for new entry is huge and need years of experiences and expertise. Many joint ventures were found among automobile organisations aim to inflict their production costs to make the selling price more competition some merger strategy had achieved synergy in product design and development.In the turbulent economic environment, mergers and acquisitions give automobile organisations a quick fix and direct access to a growing market for more market share. Mergers and acquisitions are mainly creating value for mutual benefits to both parties.4.0 CORPORATE SOCIAL RESPONSIBILITY INITIATIVESThe conventional business goal is maximising shareholders returns (Bonini et. al. 2006, Whittington 2001). However organisations are perceived as being socially responsible may create valuable market opportunities and increase more satisfied customers (Bonini et. al. 2006, Crane and Matten 2007). Davis (1973) stated that corporate social responsibility (CSR) refers to organisations consideration on action that will accomplish environment social benefits and ethical responsibilities along with the financial gains which the organisation seeks (As cited in Hoffman 2007, Polonsky and Jevans 2009). CSR helps to improve employee engagement to make for better management, declining in employee perceptions will leads to significant threats to engagement (Hall 20 10).Organisations always have an implied contract to embraces a diverse range of stakeholders which may have different social interests (Bonini et. al. 2006, Polonsky and Jevons 2010). Organisations can opt to react, defence, accommodate and proactive towards CSR as part of global strategies. Being socially responsible important however organisations must make a conscious decision about the degree to which they then leverage their CSR activities, thus translating doing good into strategic benefit (Polonsky and Jevons 2009).The five global automobile organisations demonstrate adequate CSR initiatives to improve their brand standing in automobile industry (Appendix 2). The CSR actions had contributed both positive profits to Honda, Hyumdai, Toyota and Volkswagen, also a negative loss to Daimler even though Daimler pursing quite adequate CSR actions. Global automobile organisations are aiming to achieve the highest category of the CSR Philanthropic responsibilities. The most common pra ctices are social projects, donations and sponsorship (Hall 2010).CSR needs resources such as funds and employees participation. Organisations are facing dilemma to satisfy the stakeholders with different social interests (Polonsky and Jevons 2009). some(a) authors criticised that global automobile manufacturers who produce fuel guzzling SUVs for urban users at the same time promote fuel-efficient vehicles to public (Polonsky and Jevons 2009).CSR may not directly impact the organisations financial performance as revenue may be stirred by other factors such as economic. However a significant observation from literature reviews that organisations are difficult to sustain or strengthen its market share standing if they are not socially responsible to the society, this may adversely affect their long term value, the brand, talent and relationship (Bonini et. al. 2006, Hall 2010, Piotrowski and Guyette 2010). occidental AND JAPANESE LEADERSHIP APPROACHESWhen automobile industry was lead ed by Western countries, Western leadership by Frederick W. Taylor was widely applied in the automobile manufacturers such as General Motors and Ford (Darmody 2007). His idea of leadership was planning and decision making lies on management level while production workers only accede in predetermined executions to ensure efficiency (Almashaqba and Al-Qeed 2010, Darmody 2007). Western leadership was emphasised on efficiency to maximize profits.In Western leadership, the role and responsibilities, authority and accountability, procedures and practices between management and workers are formalized to avoid the conflict in the relationship (Almashaqba and Al-Qeed 2010). Japanese leadership deliberately stresses decentralized management structure, praises the achievements of individuals and gives rewards to outstanding performance (De batting order and Meyer 2004). Autonomy similar to trust in eastern countries, decentralization and rewards can improve employees morale thus productivity .Japanese leadership introduces lean strategy and just-in-time production techniques to achieve production flexibility without increasing indirect labor costs (Shadur and Bamber 1994). These provide automobile organisation to deliver what is expected by customers in just-in-time (Chen et. al. 2010). A research done by Abbggelen and Stalk (1985) shows that the United States automotive plants required 250 percent human resources compared to the Japanese plant to make similar vehicle (Shadur and Bamber 1994).Just-in-time attack is dependent on the balance between the vendors flexibility and users flexibility (Slack et. al. 2007). Parker and Slaughter (1988) comments that lean production is a intensifies the pace of work as the production is operated in closing to the breaking point without supporting buffers, organisation may face severe difficulty when there is a material shortage (As cited in Shadur and Bamber 1994). Some analysts see lean production techniques as merely a subtle fo rm of management control (Mehri 2006, Shadur and Bamber 1994).Japanese leadership focuses on waste reduction and value-adding activities, these focuses are short-term benefits thus Japanese leadership may ignore long-term competitive advantages (Chen et. al. 2010). A recent qualitative research had lifted Japanese leaderships veil as limited potential for creativity and innovation, narrow professional skills, worker isolation and harassment, dangerous conditions on the production line, accident cover-ups, excessive overtime, and sorry quality of life for workers (Mehri 2006).The Japanese and western leadership are different in process. There are pros and cons between Western and Japanese leadership and not single ultimate solution for automobile organisations in different geographical area, the leadership application is subject to the culture of the workforce, labour union and availability of resources i.e. logistic, material and expertise. Shadur and Bamber (1994) points out Gener al Motors plants in Australia faces challenge when they started lean production due to the culture different from the labour union and employees who used to work in a team than individual.Although several criticisms of lean production were discussed, however it is concluded that Japanese leadership can potentially contribute to a substantial improvement in automobile manufacturing competitiveness.CONCLUSIONBusiness strategy is about creating sharper scope focus on a business unit contrast with corporate strategy which concerned an overall portfolio of several business units a whole. HMC had strengthened both product-related core competencies and process-related capability to strive for excellence in HMC establishment as a responsible organisation.Mergers and acquisitions are very important to global automotive organisations for reduce the risk in bankruptcy, achieve cost reduction and production effectiveness and explore potential for new product and gives instant access to new tech nologies.Cost and stakeholders value is crucial consideration when organisations decide on the investment in CSR action plans since the financial returns are not easily measured. This report concluded that there are more advantages than disadvantages for CSR as strategic tool in global strategies. some(prenominal) Western and Japanese leadership was develop in the different industrial time therefore some of the leadership element many not be suitable to automobile organisations such as mass production in low turnover season. 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