Managing In A Global Context: The Automotive Industry - Admission/Application Essay Example

Managing In A Global Context :The Automotive Industry Introduction The Automotive industry is without a doubt one of the most expansive and influential industry globally with majority of the companies involved manufacturing cars targeting both the local and international markets. This paper will discuss the various way in which globalization has influenced the industry in terms of sales volume impact or emerging markets social political and ethical issues (Laudon and Jane 2). Given the expansiveness of the industry, particular attention will be given to Toyota and General Motors, which are currently two of the leading, brands albeit originating from very diverse backgrounds. In addition, their global latitude makes them excellent case study examples; more so Toyota that is at present the biggest and fastest selling motor vehicle manufactured in the world. Global Market Strategies In 2008, Toyota became the world’s highest selling automobile company having surpassed market leader General Motors. Toyota’s intentional strategy is founded on manufacturing high vehicles that cut across various global market segments. They have high-end vehicles such as the land Cruiser Prado, or the Lexus series, which are sold in the western world. They also have a range of cheap affordable cars targeting emerging markets more so in Africa or and Asia, which has encouraged low-income customers to opt for their products. Before 2008, General Motors had been on the lead but lost out to Toyota because they concentrate too much on high-end markets, which gave Toyota, and other low priced Asian company’s leeway to establish themselves. Honda and Kia have also copied Toyotas propensity for differentiating their market segments. For example, although they have high-end vehicles like the Honda CRV, mostly targeting wealthy European and American clients, the Ford Fit, which is a much smaller fuel-efficient car, is currently the most popular Japanese car brand (Caulderwood). Ultimately, the Auto industry has been forced to make allowances for their various global client bases; this is evinced by the fact that some brands have adopted their manufacturing process specifically to fit some markets countries. For example, Toyota modeled the Lexus brand after the Harrier and based it in the USA. This is because many Americans were put off by the idea of driving a cheap Japanese car. However, by rebranding it and giving it a new an Americanized name, Toyota managed to make serious inroads into the market share of local US companies like GM and ford. Impact of emerging markets Majority technology and auto manufacturing firms are cognizant of the fact that the next wave of industry growth will likely come from the developing economies otherwise known as emerging markets. Many of them have been working to ensure that they hit the ground running in these new markets by establishing themselves early as market leaders. Today, Toyota has managed to increase their market presence in the developing world to 45% and they are planning to reach 50% by the year 2015. However, despite its apparent success at this, it is receiving stiff competition especially in the Chinese market, which is the fastest growing one in the developing world (Stephanie). General Motors that has been in the Chinese market longer is making proving the more popular brand in China where it has been after all for longer than Toyota. In addition, some of the emerging markets are working on their own auto industry, which makes for potential competition with the international brand. For example, China is leveraging on its labor-intensive economy to manufacture cheaper brands, which will counter the incursion of foreign car brands (Ingrassia and Joseph 12). Nevertheless, Automaker are not fazed most of them are using a two pronged approach, one hand they want to develop cars that cater for the needs of customers in this new market and secondly to increase local production so as to avoid the cost of local import duties. Additionally, by manufacturing their goods in the target countries, they can reduce manufacturing costs by getting tax breaks from local governments to encourage diversification of investment. The emergence of markets has spurred automakers to develop a variety of vehicles specifically targeting them. For example, by 2015, Toyota intends to introduce eight new subcompact cars, which are specifically designed for markets such as India and Brazil (Lee, and H 3667). Another way the emerging markets are affecting the auto industry is that they are forcing them to manufacture vehicles locally rather than import them this, as aforementioned is quite expensive (Cusumano). The move to manufacture cars locally has however had far-reaching implications that have resulted in the reduction of currency rates in the target country. To counter this, the major auto importers such as; Toyota, Honda and GM are however planning to slightly increase the price of imports into these countries to ensure that its incursion do not have negative fiscal consequences for the country (Takahashi). In 2013, Toyota opened its fourth plant in Indonesia; this investment cost $340 million and increased the company’s annual capacity to 180,000 units. This is evidence of the benefits Toyota is accruing from emerging markets where the fast growing economies are providing numerous skilled technicians to run their company as well as customers in the middle and upper class to but their vehicles. Nevertheless, the increase in sales from the emerging markets must be carefully monitored since they may come at a financial cost. Ultimately, selling products in weak economic zones required that the firm reduces its prices and this will be felt on the margins. At present, the devaluation of the yen is gradually pushing up the margin on an annual basis; however, the aftermath of the year over year currency depreciation offset could result in erosion of margins. This is especially a matter of concern since a single percent decline in the company’s long-term gross margin could have as much as negative 5% influence its stock price. Global production and supply chain For the most part, the leading car manufactures have taken to obtaining raw materials for many of their vehicle parts from third parties instead of processing their own from a scratch. However, this only applies to small parts such as steering wheels tires and leather for their seats; the significant components are always sourced from companies’ home branch. This is to ensure that the quality and standard are maintained wherever their cars are being manufactured from. According Toyota’s engineers, the key factor in streamlining the supply chain from the ground up involves reducing waste in the entire process; loosely defined, waste is anything that gets in the way of smooth production. In Toyotas case, the engineers seek to eliminate anything that could result in overproduction, which is described as producing too much too soon. In addition, waiting time in hand should also be minimized, as soon as the production process begins; managers strive to ensure that no time is wasted through bottlenecks of failure in machines. Needless inconvenience is also avoided in TPS, movement of material or paperwork is minimized and only happens when it is important. Another common production and supply chain mistake is over-processing, this is where technology is used simply because it exists and can be used not because it is necessarily going to make work easier. Excessive inventory is also avoided to reduce the level of bureaucracy in the production process, in addition motion is minimizes throughout the production process whether it is the employees moving around in the office or parts being transported before they need to. Toyota also tries to maximize on its employees abilities and talents by creating forums for them to openly discuss their issues and present their feedback. There may be a third option where a firm can enjoy the benefits of vertical integration without having to take over the supplier. In addition, Toyota is a good example of a firm that keeps a firm grip on its supply chain by applying vertical integration when dealing with suppliers. Before it takes on a supplier, it rigorously screens them for financial health and invests as much money as it needs to ensure they will survive and are sustainable even if it requires taking minority stakes. For example, in the 80’s they chose Jonson controls to be their supplier of seats, the firm was about to expand its facility but Toyota blocked this fearing it may affect their profitability and make them less capable of producing effective services. Toyota’s engineers took a problem solving approach and worked to streamline production, rearranging the factory areas and organize the inventory, the needed up proving that extension was not after all necessary and that the new firm could operate in its full capacity. It ensures that its supplies have the stability and efficacy of vertical integration but also takes care to provide it with the flexibility that accrues to a loose network of suppliers. This has been found by most critics to be quite prudent instead of the traditional vertical method where firms outright own their suppliers which can be both expensive and risky. Ethical Issues in the Supply Chain According to Marianne Jennings, ethical collapse occurs when an Organisation drifts from the basic tenets that govern what is right and what is wrong (Jennings 201). However, she adds that this does not necessarily imply that the organization has broken the law but rather acted in an unethical or immoral way. Toyota despite its reputation for competence and ethics has been on several occasions been on the receiving end of the ethics debacle. In 2014, GM had to recall over 800,000 small cars because of faulty ignition switches, these could potentially switch of the phone and prevent the airbags from deploying. This resulted in further recalls of millions of cars outside the US with estimates placing the figures at least 24 million units which cost over $1.2 billion dollars (Wallace). There have been implications of ethical failures after it was suggested that the company actually knew about the switch problem even before they launched the car but did it anyway. In fact, some of the lawsuits suggested that GM had known about the issue as far back as 10 years before they started the recalls due to public pressure. Another example of a departure from the ethical course by Toyota in 2002 where despite concerns being raised by managers, the Lexus ES was sold to customers in the US. Some of the engineers had warned that the gear changing was so rough that the car could not be considered for production. However, it was still sold and a few months and hundreds or lawsuits later Toyota was finance over 16 million dollars in damages and injury suits by customers. In February 2014, Toyota was once again embroiled in a case where it was being sued for a settlement of 1billion dollars after a defective accelerator caused the death of a 76-year-old man in a Camry. Retrospectively in 2010, Toyota was hit with another controversy; it had to recall millions of vehicles in the first quarter of the year. This led to accusation that the company was putting profit before the safety of their customers by the house oversight and government reform chairperson (Greiling). The president of Toyota was forced to give testimony in the US for the first time about the millions of defects that could result in in sudden acceleration. However, in his testimony, he tried to absolve his firm from the blame by claiming that a major course of the accidents was sticky floor mats and drivers not being careful (Jones). In the same year, Toyota was once again sued for allegations of having bought back malfunctioning vehicles and forced their owners to sign a confidentiality agreement preventing them from disclosing the problems that the cars had. The recent spate of ethical challenges has caused many customers to reconsider their stand on Toyota cars whose main attraction was after all dependability. However, the firm has been expending a great deal of efforts and money, to ensure that they manufacturing process is as transparent as possible. These way incidences of people loosing life and property will hopefully be minimized and this will go a long way in restoring the faith in the brand. Geopolitical Political factors and Trade Blocks Given their largely international scope, auto manufacturers are often affected by political factors since their products and supply chains are spread over divergent geopolitical zones. The political risk element for Toyota can have serious impacts and therefore it is very critical that the company factor in possible threats to stability before they open a branch or launch operations in a country. In 2009, several American car manufactures had to be bailed out by the US government since the Obama administration deemed them too important for the country to be allowed to fail. Supported automakers in the west with subsidies during the financial meltdown and this proved instrumental in helping the company secure political support in the region. However, in Russia, the situation was contrary as they took protectionist measures and actually doubled the price of import taxes. Aside from the direct connection, car manufacturers have of late been factored in in political decisions making by governments that want to use its technology to popularize hybrid cars and reduce the rate of environmental pollution. For example, in the US, George bush has put in place strategies that would enable the US to reduce its dependence on oil from unstable parts of the world (Tan et al 3). However, the Obama administration has taken a different approach by compounding the fuel crisis with the issue of climate change and global warming. Therefore when Toyota released the Prius which is even today the most popular hybrid car, the received a lot of government support since it was seen as a first step towards taking action to ward off the effects of air pollution and the threat of climate change. This has increased the popularity of the brand in Europe as majority of the EU member states have embrace Toyota’s vehicle more so based on their stated ambition to have a hybrid version of every one of their cars. As aforementioned, several carmakers have in the past been involved in legal disputes about the state of their car and their suspicion or having been complacent in the loss of several drivers and passengers lives. In addition to the primary legal implications, there are also political consequences since various governments hold different safety standards for its citizen’s protection. In some cases, governments may even impose additional taxes and trade barriers. When the damages levels against Toyota are found to be true by its customers and the courts, the firm may face severe ramifications from government. In political block like the UK, Toyotas policy for providing hybrid and energy effect cars has been found to be highly profitable since the entire block tend to provide both economic and political support (Sperling 2). They believe the work Toyota is doing on creating hybrids will ultimately benefit the continent and by extension the planet. However, as aforementioned, not all countries have been as receptive, in some cases, like Russia and other states in Eastern Europe, the Japanese carmaker has encountered restrictions based on political and ideological reasons. Current Trends At present some of the major trends in the motoring world and vehicle manufacturing include the development of hydrogen engines and hybrid cars and generally producing machines that as green as possible. In this regard, Toyota is way ahead of the pack with the high selling rate that has made the Prius the most popular hybrid car in the world (Dijk and Masaru 1372). Another common feature of contemporary vehicle trends is the driverless car, spurred by Google, which has been developing the Google street car, many other car manufactures such as ford and GMC have made notable development in the field. However, on a matter Toyota, which is ironically a market leader has not made any serious attempts to get into what many imagine is a revolutionally technology that may radically change the face of the motoring world. One of the technologies that have been proposes and developed is V2V vehicle-to-vehicle short-range communication which too many is the first step in autonomous driving. By sending information about such steps as braking and accelerating to the cars that are around, it can be used to forewarn braking and even save fuel consumption. At present, the company is working on their 700MHZ band, which the project will be the most effective frequency for car-to-car communication, however they are still working with other companies to develop a Dedicated Short Range Communication system (English). According to officials from the company, Toyota has the capability to create the theoretically conceptualized driverless car; however, it will take a lot more than just introducing the technology to the roads. However, its focus has been the security of drivers and passengers and come up with coming up with ways developing technology including but not limited to independent inter vehicle communication on the road. However, in as much as they intend to make novel technological breakthroughs in this field Toyotas primary interest at present is the safety of both drivers and pedestrians more so the latter whom it has found have a 37% higher chance of being hit by a car. In 2011, statistics showed that 2,264 people, under the age of 65 died while 2,147 over this age were killed on Japanese cars (English). They used this study to justify the conclusion that more needs to be done, not just to make the car autonomous but also to do so by putting the interests of pedestrians and other road users’ firsts. The first gadgets to in install in Toyotas cars include locking breaks and cameras that detect motion and deliberately guide the car into taking preventive action even if someone is driving it. In addition, Toyota is working towards a feature car that does not depend on a mixture of oil and gas like the hybrids bit rather hydrogen or solar fuel cells. The reality of modern day is that humanity is simply consuming too much oil and producing excess toxic waste products. To counter this, vehicles are working on futuristic care designs to provide practical and efficient substitute to the traditional engine in posterity. Market Performance This year, (2014) most car companies have managed to turn in considerable profits and for many, it has been the best performing year since 2006. According to a report by true care, industry wide transactions have gone up to $676 per vehicle and the incentive for spending has increased $203. However, there have been concerns that the industry may be reverting in an incentive spending which is not considered healthy. However, such tendencies have tended to be confined to segments such midsized sedans. Compared to august 2013, august 2014 has seen the top four selling vehicle brands reduce their transaction price to $600 and the incentive rising to $1,008, which translates into $3,251 a car (Stephanie). In 2014, Toyotas profits jumped by over 57% as it registered a total of $18.2 billion up from $11.6 in the previous year. Although a part of this can be attributed to the weakening yen, the sales also went up significantly with $10.1 million units being solve from the 9.7 in 2013 (Stephanie). However, as the yen strengthens, the sales are predicted to reduce as taxes are bound to increase in the next financial year. As the world gradually recovers from the fiscal meltdown that caused the collapse and new collapse of several companies between 2007 and 2010, the auto industry can generally be described as having performed one the average quite well through all this. Toyota riding at the top of the wave of growth in the auto industry and so far it has managed keep outselling and outmaneuvering other companies and it appears set on retaining its lead. Works Cited Caulderwood, Kathleen. Honda (HMC) Becomes Net Exporter of U.S. Cars As Industry Shifts Gears To Localized Production. IBT Times. 2014. Web. 09 De. 2014 Cusumano, Michael A. "Manufacturing innovation: lessons from the Japanese auto industry." Sloan Management Review 29. 2013. Web. 09 De. 2014 Dijk, Marc, and Masaru Yarime. "The emergence of hybrid-electric cars: Innovation path creation through co-evolution of supply and demand."Technological Forecasting and Social Change 77.8 (2010): 1371-1390. English, Andrew. “Toyota's driverless car”. The Telegraph. 2013. Web. 09 De. 2014 Greiling, Angela. Toyota Put Profit Before Customer Safety, Towns Says (Update1). Bloomberg. 2013. Web. 09 Dec. 2014 http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a3g5dmb3K8V4 Hammond, Robert G. "Sudden Unintended Used‐Price Deceleration? The 2009–2010 Toyota Recalls." Journal of Economics & Management Strategy 22.1 (2013): 78-100. Ingrassia, Paul, and Joseph B.W. Comeback: The Fall & Rise of the American Automobile Industry. New York City: Simon and Schuster, 2013. Print. Jennings, Marianne M. "The seven signs of ethical collapse." European Business Forum. Vol. 25. No. Summer. 2006. Jones, Ashby . "Oh What a Feeling! Study Pins Acceleration Blame on Drivers – Law Blog – WSJ". The Wall Street Journal. 2011. Web. 09 Dec. 2014 http://blogs.wsj.com/law/2011/02/09/oh-what-a-feeling-study-pins-accleration-blame-on-drivers-not-toyota/ Laudon, Kenneth C., and Jane Price Laudon. Essentials of management information systems. Upper Saddle River: Pearson, 2011. Print. Lee, B-H., and H-J. Jo. "The mutation of the Toyota production system: adapting the TPS at Hyundai Motor Company." International Journal of Production Research 45.16 (2007): 3665-3679. Sperling, Daniel, and Deborah Gordon. Two billion cars: driving toward sustainability. Oxford: Oxford University Press, 2009. Stephanie N. Mehta. GLOBAL 500 2014. Fortune Magazine. 2014. Web. 09 Dec. 2014. Takahashi Yoshio. “Honda Using New Japan Plant to Hone Global Production Expertise” The Wall Street Journal. 2013. Web. 09 Dec. 2014. Tan, JitHuat, et al. "PESTLE Analysis on Toyota Hybrid Vehicles." 2012. Web. 09 Dec. 2014. Wallace, Gregory. Every General Motors recall in 2014. CNN. 2014. Web. 09 Dec. 2014. Read More