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Trends In The Global Automobile Industry

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Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Published: Tue, 25 Apr 2017

As globalization has increased, many companies realised that strategic decisions with respect to globalization must be made are issue companies must face is that, what works in one country or region will not necessarily work in another, and strategies must be carefully crafted to take these variability’s into account. Another issue is the threat of political or social upheaval. Still another issue is the difficulty of coordinating and managing far-flung operations. Indeed, in today global markets you don’t have to go abroad to experience international competition. Sooner or later the world comes to you. [1]

Looking at the past, present and future simultaneously global automobile industry has become more complicated and competitive. The automotive industry is not an easy task. It is an industry that compasses the entire globe, as well as the areas of production and distribution, etc. [2]

history, early 20th century, the automobile industry grew rapidly into a global industry with the introduction of new technologies and trendier car models. Recession started in the whole world in the late 2007 had profound impact on automobile industry in global world dropped dramatically in 2008.

The growth and production rate has become low in car manufacturing, some of the companies have close down and others merger partnership to improve the economic ratio in the global system. This has cause low trend as compare to 90s’

Since 2007 the leading automobile industry in global system began to fall.eg. GM, FORD and others, all this industry has gone bankrupt and need help or join partnership before it can be improved in production. The situation has seriously affected areas like Western Europe, Canada and America. The market situation has then turn to improve better in Asia, country like china, India, Russia. Japan had become the world’s largest producer of low cost high volume automobiles with 28.5% market share of the global auto market.

Trends in auto sales for 2009 are now in china and Russia. Their government help to sell as many as eleven to twelve million units a year. Even some have received financial helps from other country government and car makers throughout. In this case automakers are in a serious strategy to strengthen its position in the industry. [5]

Key Global Trends

There are a number of trends that can be identified by examining the global automotive market, which can be divided into factors. Overall, there has been a trend by the world automakers to expand in overseas markets. Meanwhile the consumer’s best friend is an old paid car, and most consumers are reluctant to purchase an expensive new vehicle while they are concerned about job security or mortgage. Worldwide automobile consumers have encountered great difficulty in obtaining loans to purchase a new car, due to the global credit crises.

In Europe because of their high costs, labour law and government regulation and few disappointing model designs have cause challenges and problem facing their own manufacturers. Slowdown, leading to poor automobile sales results the Europeans market suffers from general economic market. All Automaker in the world have decided to plants and joined a manufacturing car company in china to produce cars both home and abroad. In fact, low labour costs and mass production in china threaten the auto plants located in high cost nations such as Europeans and America.

There are also some countries in Asia which has come out successful in their automobile industry, country like India have seen significant growth in its automotive sector. During 2009 local industrial giant Tata has also come out with new car call Nano with less price of $500. Consumers are increasingly sophisticated and educated; a majority consumers conduct online research before making a decision on purchases. [9]

The Industry and the Environment

The growing environment movement and value of global oil supplies are increasing the pressure on auto makers to innovate around alternative energy resources such as hydrogen and bio-fuel. Environmentally conscious consumers will likely be attracted to new technologies being developed.

Competition

Competitiveness can also be viewed from an industry or a firm’s perspective. Competition with industries is more intense when the firms are relatively equal in size; resources, products, and services are standardized; and industry growth is either slow (so that one company gains at the expense of another) or exponential (so that gaining a foothold in the market is a strategic imperative.

The growing competition between international and domestic car manufacturers has placed cost pressures on producers. They have turned to quality and productivity measures with the assistance of computer design, production, and testing. Nowadays there is competition in world trade automobile industry because of invest into production facilities in emerging markets in order to reduce production costs. These emerging markets include Latin America, china, Malaysia and other markets in southeast.

Market Trends

The US automotive industry continues to experience on-going organizational and technological change; the industry has taken steps to increase its global presence by expanding global alliances and seeking greater collaboration with other US automakers.

The big three automakers, makeup approximately 76% of US passenger vehicle production while Japanese automaker, Toyota, Honda, Nissan, Mitsubishi, Subaru, Isuzu represent 18% and European automaker, BMW and Mercedes [division of Daimler-Chrysler] make up nearly 2%. [7]

Forecasts

Currently there are 800 million cars in active use. By 2050 as India and china develop, there will be a projected 3.25 billion, by 2020, nearly 10 percent of Chinese citizens will own an automobile. In 2025 china alone will consume nearly 5 times as much gasoline as it did in 2000, primarily due to automobile consumption.

In the next 10 years, standard options in most vehicles will include. WI-FI hook-ups to provide weather information, news and other information, onboard cameras will help detect blind spots and voice command. VW predict that the sales volume will reach one million in china in the next 10years – compared with a 2002 figure of 511,000.

AUDI forecast; – also predict that 200,000 sales by 2008 compared with 86,000 in 2003.

RUSSIA ECONOMY: FROM COMMAND TO MARKET ECONOMY

The union of soviet socialist republic (USSR), more commonly known as the Soviet Union, was a socialist state that existed in Eurasia [Europe and parts of Asia] from 1922 to 1991. From 1945 until its break-up in 1991, it was one of the world’s two superpowers, along with the United States. For other communist countries, the Soviet Union was a model state governed only by the communist party. Established by four soviet socialist republics, the USSR grew into union 15 union republics by 1956.

In June 1991, Boris Yeltsin was elected the president of Russia in the first direct presidential elected in Russia history.

In October 1991, when Russia was on the verge of independence, Yeltsin announced that Russia would proceed with radical market-oriented reforms along the lines of shock therapy .As a part of market-oriented reforms in June 1992, Russia became a full- fledged member of the World Bank group. Seven months after the economic reforms Russia, the IMF granted US$1 billion on the condition that this money would not be used to finance the budget deficit.

Immediately after the dissolution of the Soviet Union, Russia lifted price controls on 90% of consumer goods and 80% of intermediate goods. By the end of 1992 the Russia budget deficit was 20% of GDP much higher than the 5% projected under the economic programme and stipulated under the budget. The soviet union’s transition was much more problematic and its successor republics faced a sharp decline in GDP during the early 1990s.one of the suggested causes is that under soviet planning, price ceilings created major problems (shortages, queuing for bread, households hoarding money)which made the transition to an unplanned economy less easy.

While the transition to a market economy proved difficult, many of the post-soviet states have been experiencing strong, resource based economic growth in recent years, though the level vary substantially. Still most of the economic hardship that struck many of the former eastern bloc countries and the post soviet states comes from the program of shock therapy.

The idea behind this program is to convert from a centrally command economy to a market economy in a short space of time. This means mass scale privatization, budget cuts and liberalization of economy and finance regulations. This shock therapy program was implemented in several former communist states like Russia.

Any business studies text book will tell you that it is important to identify your market. Initially this process is done through market research. Given the fairly closed nature of the ballooning market and the fact that many of the staff are balloonists themselves this process is not such an important one. The next stage then is to segment your market. The firm also needs to carefully consider the marketing mix and the nature of the product. Russian change from command to market economy finds a way to segment their market.

Then finally the socio-economically aspect of it, this shows the social class and income levels. The country can then use this information and also as a tool for analysing the market and also help identify market opportunities

In July 2002, the Russian ministry of industries came out with the government concept of automotive industry development. This concept determined goals task and priorities, in order to offer a package of measures for improving automotive industry conditions in Russia. The concept was applicable till 2010.

The country’s GDP (PPP) shot up to US $1.5 trillion in 2004 making it the ninth largest economy in the world and the fifth largest in Europe since they change from command to market economy. Russia is expected to become the second largest European economy after Germany and the sixth in the world in the near future.

Russian economic growth in 2005 was influenced by three primary factors; a continuing rapid expansion of domestic income and demand, improvement in the expectations of investors, and growing competitive pressures from the real appreciation of the rubble. Russia ended 2005 with its seventh straight year of growth averaging 6.4% annually, since the financial crisis of 1998. For the year 2005, the Russian GDP (PPP) was $1.589 trillion, real growth rate was 6.4% and inflation rate was 11.0%. So it looks like there is considerable progress in the Russian economy since liberalisation.

Russian economic growth can be inferred from the foreign trade balance which saw a consistent increase after its recovery from the 1997 economic crisis. Also, there was a growth seen in the percentage GDP over the years since 1999. The investment climate in Russia was gradually improving, with more and more foreign companies entering the Russian market. Russia rose to the sixth place in the FDI confidence index 2005 after china, the US, the UK, India and Poland(in march 2005, Russia was given 11th place in the FDI index.

Figure2 Macro Economic Indicator.

FUTURE OF THE RUSSIAN CAR INDUSTRY

The automotive market is one of the most dynamic sectors of the Russian economy. In dollar terms it has increased in value by 27% over the last three years and further growth is expected. It is at the beginning of an exciting battle as competition heats up and market participants seek to strengthen their positions. Growth of local production of foreign brands looks set to increase by as much as 37% in the next seven years.

Russia is also increasing. Time seems to be ripe for foreign automakers to enter the Russia automobile industry that was once owned and controlled by the state. As is the case with any industry poised for rapid growth, the automobile industry too faces several challenges. Ultimately it is the new age Russian consumer who now has income to spend and a wide variety to choose from, so it is up to the nerve of the new players to impress the Russian consumers, with world-class service and earn brand loyalty as well.

The Russian government pledged more than $1billion in state support to its ailing car industry in a bid to avoid heavy job losses and potential social unrest, as the once booming car market contract 60% this year. Before the onset of the crisis, Russia was poised to become the largest car market in Europe in 2009, giving car makers hope of offsetting the losses they face in the West. Those hopes were frustrated in the fourth quarter of 2008.

Then, in an effort to protect local car makers such as AvtoVAZ, the government imposed an import tariff on new automobiles in January, lifting the price of some imported models by as much as 25 percent.

Having sold about 1.45 million cars in 2005, Russia ranks among the top ten sellers in the world. Just as Russia’s present car market is impressive so is its future growth.

Russian carmakers have a high level of vertical integration. This has been a hurdle for the development of a modern supplier market making it difficult to withstand the international competition. But with respect to exports, Russia can become a significant member in the world automotive sector. While the growth prospective in various parts of the world is low, Russia offers good opportunities, which the automotive and supplier industry should quickly grab.

There is immense growth potential for international suppliers to Russia’s automotive sectors. Research has made an intensive market study to forecast that the share of work outsourced by Russian OEMs will rise to 45% in 2010 compared to 24% in 2004. The same period will have a threefold increase to 39% in the locally made components in foreign vehicles. This upswing is essentially because the Russian Original equipment manufacturer (OEMs) are keen to purchase components from international suppliers who have greater environmental and safety standards.

Russia market of the future, after china, Russia is one of the fastest growing auto markets in the world; between 2004 -2014 the study claims each year will see 100,000 more new vehicle registered than the previous one.

Prospects for suppliers;

Automotive suppliers can also benefit from the booming car market in Russia. At present the top twenty (20) suppliers worldwide have around one hundred and fifty (150) production sites in Eastern Europe. Car makers will involve their suppliers more in creating value in future and it will rise from 26% to 43%, amongst international car makers, the proportion is already high, at 66% but even this is set to rise to 70% by 2010.

The international car makers are set to triple their procurement from local suppliers to meet Russia demand.

Modernizing Russia car companies

Russia is catching up fast; through as study shown, it is set to establish itself not just as a fast growing market but also as an attractive place to produce.

The Russia automotive sector has to modernize across the board. This is evident from the level of investment in Russia compare with other countries.

Russia cannot compete to the world car market unless its economy improves still further. Russia also needs to attract more foreign investments, through investment agencies or special economic area for example. It can act quickly to make its domestic automotive industry more competitive long-term. This would boost the Russia economy as a whole.

According to the study in economy in Russia, a modern, internationally competitive automotive industry in Russia would create around a million jobs.

The slowdown in Russians automotive market began in October 2008, when many banks were forced by the credit crunch to stop giving affordable car loans.

Every European nation of any important has taken a step forward and the increased competition between them has served to develop their business. Countries like Germany, France, Italy, USA, Spain, England, Austra and Hungary.

We expect that more foreign auto giants will enter the market in future to fill the demand and supply gap. According to our new research report-booming Russia automobile sector- the Russia automotive industry is growing at a fast pace and emerging as one of the most competitive and dynamic industries in the world level.

THE OPPORTUNITIES AND COMPETITION CHALLENGES

Global competition meant finding not only exceptional suppliers, wherever they might be, but also suppliers willing to step up to the risk associated with new products. Global competition is here to stay.

Attractive new market; because international operations require local interaction with foreign customer’s supplier, and other competitive businesses, international firms inevitably learn about unique opportunities for new products and services. Knowledge of these markets may not only help to diversify their customer bases and smooth the business cycle. Global operations also add production flexibility so product and services can be switched between economics that are booming and those that are not.

Competition

A key element of the competition in the Russian motor industry is the ability to produce at low costs, lacked by most European and American carmakers. In their attempt to escape the price cost squeeze,

There are two things required for continued growth in the Russia automotive market. First automotive companies need to have workable strategies and targeted management. Second, Russia needs to stabilise its economic and legal framework in order to take advantage of the country’s low labour costs and the size of its economy.

Russian are going to face global competition in terms of attract and retail global talent, global organizations can attract and retail better employees by offering more employment opportunities. They need people in all functional areas and area of expertise worldwide.

Achieving global operations, the transition from domestic to global to achieve it strategy require careful analysis. This section introduces four global considerations. 1. A good product design, 2. Process design and technology. 3. Facility location and 4.Culture and ethics.

Russian vehicles manufacturers suffered because they purchased low quality components at inflated price. In order to maintain strong sales of domestic vehicles, they must provide better quality at competitive price. This goal could be achieved only if local assemblers used modern components either imported or produced in Russia, under licence from well foreign manufacturers.

There are very few domestic automotive component manufacturers that can compete with western companies. Local firms suffer from in effective management, outdated technologies and equipment, and lack of financing to modernise.

Russia cannot connect to the world car market unless its economy improves still further. Factors which survey respondents mentioned include, reducing import duties on components for assembling vehicles and modules. It also needs to tighten its technical standards for products. Russia should attract more foreign investment, through investment agencies or special economic areas. Russia economic policy needs to act here. It can act quickly to make its domestic automotive industry more competitive long-term. This would boost the Russia economy as a whole.

If the Russian automobile industry wants to grow beyond mere survival, it has to address some issues. These include product development and innovation, controlling fixed costs, improving process quality and product quality, after market management, management of global sales and distribution

Opportunity

Russian consumers preferences are shifting toward global standards and people are becoming wealthier. By 2014 international producers are expected to sell almost one and a half million new cars in Russia and about 800.000 of these will be produced in Russia ,while the remaining will be imported.

Russia has been ranked the thirteenth largest manufacture of vehicles in the world. Backed by a booming economy, the benefit both has been a sudden boost in the demand for brand new domestic as well as foreign vehicles.

Joint ventures with foreign companies offer suppliers an excellent opportunity of looking in to international standards quickly. These joint ventures could benefit both sides on the order hand; Russian suppliers will become more efficient in production processes and can match up to today’s quality standards. On the order hand, international partners will get access to Russian customers, local authorities and existing market structure.

Representatives of foreign companies establishing production bases in Russia say that they will take into account the specifics of the Russian climate and geography and, most importantly, the price for cars assembled in Russia will not exceed $15,000.

Russia cannot provide the high potential sales volumes like china or India. But, the Russia market has the same sales potential as Germany, France and Netherlands combined. This volume is sufficient to maintain a viable motor industry, provide Russia carmakers can maintain a fair market share. However, the low cost production base and a possible focus on modern but low cost volume products could open up a vast export market far larger than what is currently being exploited. Currently, global exports of the Russian motor industry focus on traditional allies or on the developing countries.

CONLUSION

The growth of the automobile market has taken the world economy by storm. Providing irrefutable proof that Japanese automakers were simple better than their European or US counterparts. In fact, they were not a little better, but a lot better- two to ten times across a range of performance metrics. [4]

Given the dramatic changes in the automotive product development environment, it is obvious that a strong product development system is a crucial core competence and fundamental to the success of any customer-driven company.

The growing complexity of the modern automobile, along with the changes, makes new product development extremely challenging. In today’s hyper-competitive market, excellent in product development is rapidly becoming more of strategic difference than manufacturing capability. In fact, it can be argued that product development will become the dominant industry competence within the next decade. The reason for this prediction is simple: There is much more opportunity for competitive advantage in product development than any where else. [6]

It is well known that some manufacturers are very good at going for the lower end of the market. For example, some car manufacturers are able to fit into this end by reducing the complexity of cars and given the basic requirements of decoration, function and design appeal without losing the benefits of good safety and mechanical design.

It has been realised that without good facilities it will not be possible in the future to be competitive, and such companies will be priced out of business.

Ideas for new products can be obtained from basic research using a (SWOT) analysis (strengths, weaknesses, opportunities and threats), market and consumer trends, company’s R&D department, competitors, focus groups, employees, salespeople, corporate spies, trade shows, or ethnographic discovery methods (searching for user patterns and habits) may also be used to get an insight into new product lines or product features. [3]

Idea generation or brainstorming of new product, service, or store concept – idea generation techniques can begin when you have done your opportunity analysis to support your ideas.

Many industry leaders see new product development as an ongoing process (referred to as continuous development) in which the entire organization is always looking for opportunities.

To succeed in a competitive market, a company must meet the following three goals in manufacturing.

Manufacturing efficiency (lowest cost) 2. Manufacturing quality (highest quality),

Manufacturing productivities (short delivery)

Competitive manufacturing is the ability to build products that optimise these three goals. These goals will serve as the criteria for judging whether activity adds value for a manufacturing firm. Ultimately they guide a firm while on the improvement path, positioning it to be competitive in the market.


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