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Free Auto Industry Drivers Essay Sample
QUESTION 1: THE MAIN AUTO INDUSTRY DRIVERS, GENERIC STRATEGIES AND KEY SUCCESS FACTORS.
The auto industry or the auto motive industry is the industry that deals with manufacture and sale of motor vehicles and their spare parts. According to Chithra, the automobile industry is very old and started from simple transport means such as carts drawn by horses and other simple modes of carriage used in ancient times. From carts, it has evolved to a very big industry making sophisticated engines for transport and making billions of dollars in profit. (2006). It includes manufacturing of vehicle and spare parts, retailing and offering of auto mobile services such as repairs.
Some of the oldest players in this industry are the Ford motor company which was established in America by Henry Ford in 1906, Toyota motor company established in Japan in 1937, general motors, Isuzu, Suzuki, Hyundai, Honda, Nissan, Volkswagen, fiat, among others.
The auto industry has evolved in its production orientation owing to changes in the market. It has evolved from craft production to mass production and now to lean production. Craft production was characterized by low output since all the production was done by craftsmen. It as replaced by Mass production which was characterized by producing in large quantities of standardized products without minding the requirements of the customers. It had the push philosophy that says that if you produce and make items available to the customers, they will buy. This has been replaced by the pull philosophy hence the lean production system which says that before manufacturing, a company should understand the requirements of the customers so that it produces what the customers need in terms of quality and quantity.
All these changes in the production orientation have been brought by changes in the environment such as changes in technology, consumer tastes and preferences, lack of materials, changes in availability of labor and changes in the environmental rules and regulations. These are what we refer to as the drivers in the economy.
The first driver is the supply in the industry which deals with the availability of raw materials to the auto industry. Most players in the auto industry acquire their materials from outside the company. They purchase in large quantities to enjoy economies of scale. It is also a way of ensuring that players get high quality materials since most suppliers are specialized. With the emergence of lean manufacturing system, companies have developed ways of managing the inventory of their materials to enhance efficiency and effectiveness. The supply market has been growing at a very high rate and has been using updated technology. Small scale suppliers have been pushed out of the market and replaced by large scale, specialized suppliers. This has made the small scale suppliers to merge so as to compete with the big suppliers effectively. The suppliers have become more involved in the production system, with the producing companies requiring suppliers to supply already assembled parts to make assembling quicker and more convenient. Analysts say that with the changes, there is a possibility that in the future, large supplier companies who supply assembled parts will need to link with smaller or sub-suppliers, who will in turn supply them the parts to assemble the parts before they are sold to the main assemblers. This will create a secondary supplier market.
Another driver in the auto industry is demand. It is observed that the demand for automobiles has changed from standardized items to more specific automobiles. This means that customers prefer customized vehicle and this has made the producers to engage in market research so as to understand the market well. Due to global warming and economic problems, customers are looking for vehicle which use environmental friendly fuel and those that are more efficient. The expectation of the customers on the producers is also growing to include inclusion of communication gadgets, security devices, entertainment and comfort features in the vehicles.
The other driver for this industry is technology. Advancement in technology has affected the industry in terms of quality and cost, adhering to environmental requirements and providing safety to customers in their vehicles. Technology has made the producers of vehicle to come up with environmentally friendly and efficient products and at the same time cutting cots. There is pressure on the motor companies to reduce emission of carbon dioxide and other toxic components like lead to the environment. This is accelerating the advancement in level of technology since the companies are constantly looking for ways to minimize these emissions.
The other driver in the auto industry is competition among the players and competition against the other industries in the economy. Competition affects the way a company allocates materials and aids in attaining efficiency by eliminating waste. Through competition, players in the auto industry have been able to produce in huge quantities and at the same time produce goods of high quality. Competition has made the industry witness major structural changes to adapt. Examples of changes are mergers and acquisitions such as the acquisition of Volvo and Land rover in 1999 and 2000 respectively. Companies operating in different economies or countries merge so as to diversify in order to reduce risks, avoid wasteful competition and create market dynasties. Competition has also made companies to go lean by adoption of flexibility in the work place, maximizing output while reducing material used and doing things right the first time.
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Another main driver in the auto industry is legislation by governments on environmental, capital markets and labor. Various governments have effected rules to govern production to ensure that companies reduce pollution to the environment. Other governments effect rules governing the engine capacities and providing information to customers. Some also require companies to recycle most of their waste products and eliminate substances that pose health hazard to the environment. This legislation increases the costs of operation of the companies since they require use of resources. But the companies have to conform since non conformance might lead to legal proceedings against the company. Other professional legislation and labor laws may make small scale companies to go out of business due to their demanding nature in terms of resource commitment.
For companies to survive in the auto industry taking into consideration the drivers, players must adopt some generic marketing strategies. With the increasing competition, emergence of e-commerce, legislation changes and change in customers demand, the companies must adopt marketing strategies. Generic marketing strategies were developed by Michael Porter and help players to identify, develop and retain the target market by satisfying the needs of the market (Sahaf 2008) they help a company to acquire competitive advantage over the other competing companies. The generic strategies are cost leadership, cost focus, differentiation and differentiation focus (Vanhove 2005). Talloo (2007) has other generic strategies as pioneers, late and close followers, horizontal integration, diversification and intensification. However, the porter's generic strategies are the most used. Cost leadership means gaining competitive advantage by producing at a lower cost than the competitors. When a company produces at low costs, it is able to offer products at lower prices thus gaining competitive advantage.
Cost focus is providing products to customers at a cost that is acceptable by the customers. (Allen 2001). The company seeks to produce at the cost that the target market can accept. Differentiation means making the products of a company unique in the eyes of the customers (Harrison & John 2009). Differentiation can be achieved by creating a superior brand name, high quality products, efficiency in service delivery, best packaging among other ways. Differentiation focus is producing customized goods for a target market in terms of quality, price and efficiency. It is the creation of the notion in customers mind that in that particular market segment, the products of a company are the best and unique.
According to Gupta, Gollakota & Srinivasan, key success factors are the factors that affect the survival and existence of an organization in the market. The authors classify them into factors relating to the structure of the industry, factors affecting the competitiveness and position of a company in the industry, factors related to the environment and temporal factors. For the motor industry, key success factors are price, marketing, creating good image of the company and networking. About price, the company must be careful to cover its operating cost but at the same time charge an acceptable price to the customers. A company in the auto industry should be very careful in its pricing strategies since there is stiff competition in the industry. Marketing as a key success factor means that a company should select the best marketing strategy in order to survive in the industry. A company should carry market analysis and closely monitor the market trends to ensure that it understands the market requirements fully.
The image of the firm is also a critical factor. Companies in the auto industry should enhance their image in the eyes of the public to boost their sales. Creating a good image is the key to long term success since there is stiff competition in the industry.
QUESTION TWO: THE RATIONALE BEHIND FORD'S 2000 GLOBALISATION PLAN
There are various elements that motivate companies to go global. According to Kang & Sakai (2001), such motivators can be to counter increasing global competition, keep updated with technological changes, gain access to financial markets in foreign countries, to access key resources and to achieve efficiency in management through restructuring. A company may opt to go global for one or more of the above reasons.
Ford motor company launched a globalization plan in 1994 which was supposed to be realized in 2000. The main aim of the globalization plan was to boost the efficiency and performance of the company. The major reason why Ford came up with this plan was to counter the increasing competition in the auto industry, especially from Japan (Bhattachrarya 2009). The company wanted to come up with something new to counter the competition. It wanted to cut down on costs and to increase profitability of the company. The company wanted to combine all its operations into one to increase efficiency by eliminating delays and avoiding stoppages. By so doing, the company was also targeting to produce global products from one place and modify them to suit the local markets. It also wanted to use resources efficiently by minimizing duplication. It was to come up with standard motor parts that could be used in various models of vehicles. Zairi (1999) puts it that some pronunciation by Ford Motor Company's executives show that there were other motives of the Ford Globalization plan like enhancing innovation, creating excitement about the products of the company in the market and achieving provision of high quality products.
In effecting the globalization plan, Ford motor company closed most of its plants in America and opened several others in various countries. The main aim of this was to achieve a global view of the company thus gaining customers worldwide. The other obvious reasons for Ford's globalization plan were to gain access to cheap labor in most countries in the world. This was to aid in cutting down the costs of the company and boosting profitability.
The performance of the Ford motor company from the year 1994 to 2004 has been declining since 1994 but in the year 1999, the company performed well hitting a record US $ 7.2 billion profit. The sales declined in 2000 but from then, they have been in an upward trend (Ford Motor Company website). The decline from 1994 to 1998 can be attributed to increased global competition from the Japanese companies in the auto industry. In 2000, the performance fell because in adoption of the globalization plan, some branches were closed and new ones established. This reduced profitability thus a drop in performance. Since the adoption of the globalization strategy, the performance has been improving due to the increased competitiveness of the company enhanced by the global outlook.
QUESTION 3: POSSIBLE FUTURE MARKETING STRATEGIES FOR FORD MOTOR COMPANY.
Marketing strategy is defined as the approach that a company takes in order to identify, develop and maintain a target market. There are three marketing strategies that a company can use (DeMatteis 2004). They are defensive marketing strategy, offensive and outflanking maneuvers. DeMatte is also says that there is another strategy known as the guerilla warfare. The defensive marketing strategy is recommended foe companies that produce in large quantities and consider themselves to be the market leader. They should therefore strive to maintain their market share and defend it from competitors. Such companies do not need to invest in innovation but to develop ways of guarding their market share. Since Ford Motor Company is one of the leading players in the auto industry, it should adopt a defensive marketing strategy to guard its market share from the increasing competition in the auto industry.
The offensive marketing strategy is adopted by companies that are not the market leaders. It involves trying as hard as possible to snatch some market share from the market leaders. It is also called the challenger strategy and involves a lot of innovation and use of sales promotion. Ford motor company should adopt this strategy when operating in economies dominated by other companies, for example in Japanese economies. Outflanking maneuvers as a strategy is where a company develops products and sells them to a particular market where the dominant industries do not reach. It is also called the nicher strategy. This can be used by the Ford motor company to enter the markets which are not served by other players in the auto industry.
Other marketing strategies that the Ford motor company could adopt are market segmentation, focus and cost leadership. As discussed earlier in this paper, cost leadership is the strategy where a company strives to be efficient and produce at lower cost than the competitors. Ford motor company could adopt this strategy to ensure that it gains competitive advantage over the other competitors. It can do so by engaging in lean production to increase output with fewer resources and to avoid wastage. When it produces at a lower cost, it is able to charge lower cost than the competitors hence gain a competitive edge. However, production at low cost should not be at the expense of quality. It should be by better management and efficiency.
Market segmentation is a strategy where a company identifies the needs of a particular market and customizes products to suit the needs of that market (Wedel & Kamakura, 2000). Ford motor company should adopt this strategy since people in different parts of the world need different types of vehicle, with different specifications relating to safety, comfort and performance. For example, people in developing countries pay much attention to safety and comfort details than those in underdeveloped countries.
Focus strategy is also important for Ford motor company. Under this strategy, the company should identify specific markets and there needs and concentrate on serving the market well. Ford should strive to identify the markets that it can serve better and ensure that it delivers the needs of the market.
In conclusion, it is evident from the above discussion that no single strategy is best for the Ford motor company. A mixture of strategies with a global outlook should be adopted. The company should conduct market research and development very often to keep updated with the ever changing customer needs and preferences.
