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1.0 INTRODUCTION - OVERVIEW OF GLOBAL AUTOMOBILE INDUSTRY BETWEEN 2007 AND 2010 (WC-200)
The automobile industry can be divided into three main categories: auto parts suppliers, automobile manufacturer and automobile distributors.
The automobile market has been long dominated by Western manufacturers such as General Motors, Chrysler and Volkswagen followed by eastern automobiles manufacturers Toyota, Honda and Nissan. Recently automobile manufacturers in developing countries such 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 aim at developed country automobile markets and they have made no secret of their intentions to compete in the global automobile market (Fetscherin and Toncar 2010).
The 2008 global financial downturn had negatively impacted the automobile industry into crisis thus many organisations were encountered losses and bankruptcy. However, there were four outstanding organisations recorded remarkable profit during this turbulent period: Volkswagen, Honda, Hyundai and BMW.
2.0 OBJECTIVE OF REPORT (WC-200)
The purpose of the report is to assess recent strategies employed by global automobile organisations between 2007 and 2010. Building on the principal objective, the paper also explores the process of reconciling dichotomies at Honda Motors Corporations.
The factors on mergers and acquisitions (M&A) applied in the global automobile industry are then discussed. This section is structured as follows: part 1 reveals M&A in relation to too much debts and risk of bankruptcy; part 2 describes M&A as a strategy to explore potential for product synergy and part 3 illustrates M&A for the reason to access to new technologies and emerging markets.
This report discusses the Western and Japanese leadership used by the global automobile organisations and their suitability. The report examines the corporate social responsibility practices initiated by the organisations and its impact on the financial and non financial performance.
This report employed deductive exploratory study in search to understand the global corporate strategies in automobile industry. Several theoretical frameworks were derived from related literature as a guide to analyse and integrate relevant elements from business level and corporate level strategies application. This research supported multiple secondary data such as published news, case studies, annual reports and journals articles which give different views from different angle about automobile organisations. Secondary data is accessible and less expensive so that the author is able to analyse and interpret the data more effectively.
This paper concludes the results and findings emerging from the case studies, a discussion on implications, key conclusions which can also help organisations in other sectors to evaluate their strategies at all level.
3.0 HONDA STRATEGY AND MANAGERIAL DICHOTOMIES (WC-1000)
3.1 Business level strategy versus corporate level strategy in Honda Motors Corporations.
Honda Motor Corporation (HMC) established in 1948. Honda develops, manufactures and markets small general purpose engines and scooters to specialty sports cars, had earn an outstanding reputation from customers worldwide.
Business level strategy refers to the way HMC competes in an industry in which Honda is located. Each business unit focuses on specific product or market in competition with other competitors producing similar products or close substitutes in the same market (Fitzroy and Hulbert 2005). Figure A-1 exhibits seven Strategic Business Unit (SBU) in HMC. Honda cars have a specific focus to create and maintain its competitive advantage on competition with Toyota and Nissan automobile.
Porter generic strategies framework had been employed to examine each of Honda SBU.
Cost leadership strategy refers to Honda sets out to become the lowest producer for Honda cars, trucks and SUVs. Honda City, a successful urban car had reflected Honda's innovative and quick response to market demand on inexpensive and fuel efficient (Nonaka 2007). Honda enjoys the cost advantage to produce and market its Hero Honda motorcycle in India by preference to access to raw materials and efficiency of production capability. Honda continuousÂ seeks reduction of costs with more attention being given to competitive positioning.
To differentiate common automobile, Honda created Acura, a higher range of automobiles to compete with Toyota Lexus, luxury category. Honda Acura's differentiation is based on product designs and higher horse power performance.
Honda has grown to become the world's largest motorcycle manufacturer and one of the leading automobile manufacturers. The history of HMC shows some of the density in managing a large global organisation. Developing business level strategy needs understanding the external context of the business. Honda is strengthening its corporate structure by making it more flexible and dynamic to meet the needs of customers, business environment society as a while (Honda Annual Report 2009). Honda will enhance its reputation in the community through companywide activities.
Honda automobiles, which contributes around 77 per cent of group sales concentrates on the below winning formulas:
Product diversification concerns an expansion of product range that Honda supplies. Honda extended its product range from light truck to compact sedan cars. In North America, Honda introduces Pilot, Acura TSX, Acura TL to meet the demands. In Japan, Freed, Odyssey and Life had positive effect. Honda also broaden its range to launched Honda City in Asia outside Japan as the trend towards driving smaller cars accelerated along with the rise in fuel prices.
Functional diversification concerns an expansion of range of activities that an organization encompasses, also refers to vertical integration. Honda opens up financial services division to lease their automobiles.
Industrial diversification concerns an expansion of range of industries. Also refers to horizontal integration. Besides automobile, Honda broadens its business into power products and motorcycle business.
Geographical diversification concerns an expansion to other countries to create additional market share and value. Currently, Honda ranked sixth in sales within the automobile industry with a global network of 396 subsidiaries and 105 affiliates recorded 3.5 million units automobiles sales in 2009. Honda expanded its automobiles geographical scope to Asia countries, such as Vietnem. Geography expansion led Honda into more than 5 regions in 160 countries, while product scope expanded from the base of auxiliary engines to power products (Honda Annual Report 2009).
3.2 Honda core competencies - Product-related versus process-related
Honda started with motorcycle business, move on to engine business and the most successful automobiles consists of third quarter of its revenue. Honda's success underlying its core competence in engines allows Honda to develop lawn mowers, motorcycles, automobiles and very light private jets (McGee and Thomas 2007).
"Built in quality"
Substantial increase in fuel price, new customer preferences and spending patterns are a significant impetus to changing the pricing model and value proposition whereby consumers are looking at the good enough at the right price (Giesen et. al. 2010). In order to support the corporate strategy, Honda enhances its Research and Development (R&D) particularly in safety technologies to help reduction on the risk of injuries to passengers and pedestrians from car accidents, efficient and flexible production and sales capabilities in various business units.
Honda recognises the rational to invent non-pollutions product in the first place than to have cleaned them up later. The electric car demonstrates a technological solution for the air pollution caused by automobile emission (Bernabo et. al. 2009). Electric cars store electricity in high performance batteries and their electric motor provides propulsion with zero emissions (Bernabo et. al. 2009).
"Right first time"
Lean management focuses on eliminating waste (non-valueadding activities) throughout their systems (Chen et. al. 2010). This leads organizations to better understand their customers' needs and deliver what the customer wants exactly when they want it (just-in-time) (Chen et. al. 2010). By selective sharing of design development, Honda 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). Honda make use of its supplier network to expand accessibility to low price components in Vietnam at none-core parts becomes advantage to Honda to reduce production cost thus selling price. However, Honda Vietnam strict controls over suppliers to ensure stable and good quality supply (Oh and Rhee 2010, Tiep 2007). Of particular interest are the suppliers' modularization and quality improvement capabilities gives direct positive influences on a Honda's competitive advantage and robust against technological uncertainty (Oh and Rhee 2010).
Automobile manufacturers need both suppliers and dealers to complete the complicated fabrication and reaches end consumers. In contrast to many competitors, Honda orchestrates the value chain activities of a complex network of players. Honda turned buyer-supplier relationships into close partnerships. As a result, suppliers develop and provide ideas that can speed a product from concept to market or reduce costs. To realize the benefits of a close relationship, Honda conduct joint improvement activities with suppliers, share information, develop suppliers' technical capabilities, and work to understand how suppliers manage their business (Nguyen and Slater 2010). Honda's ability is to train and develop its dealer network with operating procedures and policies in setting up the showroom, merchandising and service management (Hamel and Prahalad).
THE ROLE OF MERGERS AND ACQUISITIONS (WC-1000)
The objective of mergers and acquisitions as a strategic tool to gain more 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 automotive business faces severe challenges with saturation/flat sales in the West and intense competition but also opportunities in emerging markets, such as China and India are expanding rapidly makes the existing competition becomes intense. Alliances is useful in situations of high uncertainty and in markets with growth opportunities that an organization either does not or unable to pursue on its own (Cools and Roos 2005).
4.1 Too much debt and risk of bankruptcy
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 June 6th).
4.2 Potential for product synergies
PSA Peugeot Citroen synergize with Toyota to produce small cars in the Czech Republic. PSA Peugeot also produces diesel engines with Ford Motor. Chrysler builds minivans for Volkswagen in Winsor, Ontario since 2008. Ford Motor and Fiat share a manufacturing plant in Tychy, Poland to produce Ford smaller car, Ka and Fiat 500. Daimler announced strategic partnership with Renault and Nissan to build small cars, engines and van together.
4.3 Access to new technologies and emerging markets
It is increasingly likely that developing country automotive manufacturers and most likely one or more Chinese manufacturers will soon enter the US automobile market (Fetscherin and Toncar 2010). The most probably only a matter of time before Chinese automotive manufacturers follow in the steps of the European, Japanese and South Korean car manufacturers before them and aggressively enter the US market by either exporting or by building their own production sites in the USA (Fetscherin and Toncar 2010). In addition, as pressure 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.
BMW, Daimler and General Motors formed an alliance in 2005 to develop hybrid vehicle technology.
5.0 CORPORATE SOCIAL RESPONSIBILITY INITIATIVES (WC-500)
The conventional business goal is profitability (Whittington 2001) however organisations perceived as being socially responsible may increase more satisfied customers (Crane and Matten 2007). Adversely, Thomsen and Pederson (2000) supports corporate strategies that exclude corporate social responsibility are unlikely to be sustain because they are lack of support from consumers (As cited in Whittington 2001, Crane and Matten 2007). Davis (1973) stated that Corporate Social Responsibility (CSR) refers to organisation's consideration on action that will accomplish social benefits along with the economic gains which that organisation seeks (As cited in Hoffman 2007). Organisations can choose to react, defence, accommodate and proactive towards CSR as part of business strategies.
5.1 Honda Motors Corporations
Honda reinforces to advance its contribution to traffic safety in motorised societies in Japan and abroad (Honda Annual Report 2009). "Econopower Fuel Efficiency Race" to promote environmental proctection awareness. Honda sets global targets to reduce the environmental burden as measured by the Life Cycle Assessment in all areas.
Honda abide laws by seeking understanding of law essence, consult legal experts, governments when in doubt and report in the case of violation. Honda appointed Compliance Officer, who in charge and ensure compliance and improvement of Business Ethics. Honda employed 2.07% disability employees and provides disability facilities to them.
The Snowy Ride charity events to support the Steven Walter Foundation and used for research on and treatment of childhood cancers.
5.2 Toyota Motor
Toyota's management team and employees conduct operations and make decisions founded on that common system of checks and balances and on high ethical standards.
Soil and groundwater measures to prevent underground leaking using pump and airlation treatment. Toyota reports the levels of trichloroethylene to the government and to local councils in the surrounding communities.
Toyota has been using certified subcontractors to process electrical devices containing
Polychlorinated Biphenyl (PCB).
Volkswagen supports policy of Broad Based Black Economic Empowerment (BBBEE) in South Africa. Priority given to previously discriminated groups. Volkswagen also voted as one of the Best Employer of 2008 in Europe.
5.4 Hyundai Motor
6.0 WESTERN AND JAPANESE LEADERSHIP APPROACHES (WC-500)
However, in reducing waste and focusing on value-adding activities, Japanese leadership focuses on obvious short-term benefits and may ignore long-term competitive advantages (Chen et. al. 2010). Since the return on investment for many innovations is very difficult to quantify when the ideas first take shape, especially before the potential market has been clearly identified and developed, it is very likely that those ideas, especially the ones offering particularly long term contributions, will be considered non-value-adding and thus be cut-off (Chen et. al. 2010).
7.0 CONCLUSION (WC-200)
There is no single definite strategy, automobile organisations have to regularly revisit their business plans in order to continually enhance the strategies to meet the high competition and fast changing business environment. Corporate strategy is a double-edged sword organisations need to innovatively and effective to seek out and coordinates across functions and businesses. Honda managers have to deal with organisation's cycles and expansion and contraction, diversifying, then refocusing on core business. These changes were accomplished through a combination of internal development, increasingly on a global basis, while both cooperative and competitive strategies were deployed at various times. There will be no simple solutions and success will depend on the soundness of the strategic planning and decisions taken by top management, and the ability of the organization to implement those strategies.
Automobile organisations have to proactive towards corporate social responsibility initiatives in order to outperform its competitors. Evidence shows that organisations which proactive in CSR had increase their revenue also brand position in the industry.
Both Western and Japanese leadership styles have pros and cons in strategy application. Western leadership style may be suitable for western plants whereby Japanese leadership is good in eastern country.
Finally, as technological uncertainty increases, automobile manufacturers should innovatively address market demand or alliance with significant capabilities players for quality improvement and modularization.
The limitation of this report was the selection of the automobile organisations. There is plenty of evidence shows that smaller organisations are pursuing more sophisticated strategies such as China Geely and others. However, the variability of the observed variables in the selected organisations shows that the arguments from the data set are sufficiently to reflect the automotive industry. Areas for further study may include an in-depth case study on other eastern developing countries automobile manufacturer's strategy management practices.
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