Global Strategies in the Automobile Industry - Essay Example

Introduction Over the period of last three decades, it has become evident that globalization has become probably one of the most important factors in the world. The shifts in the global economy and the way economic geography has changed indicates a gradual shift in the way international industry is shaping around different parts of the world. In the wake of the financial crisis, besides financial services industry automobile sector has been badly affected. The demand in matured and established markets has declined considerably since 2008 and the global demand patterns are clearly shifting towards countries such as China where demand for luxury cars is on the rise. The geographical concentration of production units which was once part of the developed world such as US, UK and other parts of the Europe is now clearly finding its way towards cheaper and sustainable production locations across the globe. What is critical to note and understand however, is the fact that automobile industry has remained also one of the symbols of national pride for the developed economies. US and other economies have virtually developed with the development of their automobile industry and it was also because of this reason that after the financial crisis of 2008, US government injected large amount of money into the automobile industry in order to help it survive the recession. This paper will therefore understand and explore the current global patterns of production, trade, FDI and Consumption in automobile industry and how they are actually influenced by the nation-state. The Concept of Nation-State Though the traditional concept of nation-state is linked with the geographical area from where political legitimacy as a sovereign state can be driven however, the overall concept has changed over the period of time. (Ersoy, 2010).  Since the advent of globalization, it has been advocated that world has become border less and the role of State has either been vanished or is minimized to the best. This however, has not been the case as State and the concept of nation-state has survived over the period of time. (Dicken, 2007) In traditional sense, a State is usually a political and geographical entity whereas the nation is more of a cultural concept. The nation-state therefore is a concept which combines both the concepts and suggests that nation-state can be formulated at different times and different places in the world. A nation-state therefore has an official language, its own legal system, issues a currency, and makes use of bureaucracy to order the overall society. A nation-state also extracts the legitimacies and loyalties for abstract entity called State. (McNeely, 1995) The advent of globalization has resulted into a gradual decline in the power of State to work as a nation-state because of the emergence of the new cultural identities in the world. New cultural identities which started to emerge in other countries of the world were mostly US or West dominated and as such nation-state as a cultural unit started to weaken. There are two arguments which are being made against the nation-state from the perspective of globalization. (Ijioui, 2010) First, it is suggested that the presence of nation in international trade actually increases the transaction costs. High level of transaction costs actually increases the cost of doing the business and therefore restricts the flow of goods and services across different borders. Secondly, it is also suggested that juridical discontinuities can also reduce the overall gains from the international trade making it less profitable for the international players to actually trade at global level. (Florida and Kenney, 2004) Another set of argument regarding nation-state is related with the moral implications of the nation-state. It suggests that the advancement in the communication networks have actually made the physical borders useless because easy communication makes it easier for international players to reach their target markets and also to the suppliers of the raw material in the developing countries. (Ōmae, 1995) It is within this argument that it is suggested that due to explosion of communication revolution, the national borders have actually become immoral as there is no need for them as they become irrelevant. This argument is based upon the emergence of global audience due to communication revolution however, as Sen argues, due to multiple identities emerging at different levels within the societies, it may become irrelevant to consider a global audience even due to communication explosion. (Held and McGrew, 2007) However, with 2008 financial crisis, the global focus on the vanishing role of nation-state has drastically changed. The economic stress brought about by the economic recession has actually reversed the argument of free market economy. As a result of 2008 crisis, the bail-out packages, economic stimulus as well as the austerity measures were mostly focused upon further strengthening the State rather than contributing towards the global economic decline. The global income inequalities and distribution of income/wealth as well as locus of market supporting institutions have always remained on the nation-state. (Manent, 2006) It has been however, argued that the role of the state has always remained active as the overall economic development occurred mostly due to the role of state in using its resources to achieve the required degree of economic development. From the perspective of defining identities and attachments, globalization may fail to explain as to whether there is clear and explicit evidence indicating the emergence of global identities and attachments. There is a very little evidence in this regard which can identify as to whether global identities and attachments have really emerged as a result of the emergence of globalization. (Mearsheimer.) The lack of creation of global institutions which can exert control at the global level may also be another deficiency which globalization as a whole may not be able to overcome. There have been no global institutions which can exert such control and create a set of global governance mechanism which can actually oversee such control over the borderless States. (Held and McGrew, 2007) The emergence of the large transnational corporations (TNCs) has actually created an interesting debate regarding the relationship between the TNCs and the nation-state. With more power at the socio-economic scale being acquired by TNCs it has become an interesting issue to explore as to how nation-states would actually behave and act in the presence of a separate and new emerging power structure which is not being directly controlled by the nation-state itself. (Paul, Ikenberry and Hall, 2003) Automobile Industry Though Detroit remains the place where the modern automobile industry was born, the recent trends clearly indicate that the industry, jobs and production is clearly moving to other parts of the world including China and Brazil. It is however, critical to note that the overall consumption patterns however, are still in favor of already established and matured markets for the automobile industry. (Cooney and Yacobucci, 2007) Traditionally over 90% of the production facilities for the automobile industry remained concentrated in US, Europe and Asia with each Region producing distinctive brands with their own technological advancements and features. Asian cars have been known for their fuel efficiency and smaller sizes whereas the European and North American automobile industry was more driven towards the luxury cars. It is critical to understand that automobile industry is a highly concentrated industry with most of the production and the brands still concentrated into few countries include US, Japan and Germany. Over the period of time, the industry further consolidated as larger producers not only acquired new and smaller firms but suppliers to the industry also consolidated themselves and grew in size. (Yang, 1995) What makes automobile industry a part of the globalized industry is the fact that it has been able to attract the Foreign Direct Investment (FDI) but cross-border consumption and global production has further added to this also. A key trend emerged in late 1980s and that was of huge FDI flows to the countries like China, Brazil and India where major plants of global car manufacturers were shifted and the cars produced were subsequently exported back to the developed countries in order to take advantage of the low costs and cheap labor. Over the period of time, trends have also emerged which indicate that the suppliers in the developing countries are emerging as global leaders. With technological advancement due to globalization, suppliers in automobile industry in developing countries are believed to have increased their capabilities also. Global Trends It is suggested that China and US, two largest economies in the world now almost account for 60% of the growth in the automobile market in the world. US has approximately 12.7% of the production of the passenger cars as well as the commercial vehicles. 1 The recent production trends indicate that in 2013, over 87 million units were produced at the global level however; China remained the top producer followed by European Union, US and Japan. Considering these trends and emergence of China as a formidable player in the market indicates a complete shift in the production as well as consumption patterns in the automobile industry. Despite the fact that China remained the largest producer of cars during 2013, it is clear that China has no global brands of cars in the market. Top production, brand wise, indicates that Toyota remained the top producer by manufacturing over 10 million units during the year followed by G.M. from US and Volkswagen from Germany. From the consumption patterns, it is also clear that China is leading the wave in terms of consumption also. Over 18 million units have been purchased in China with North America and Western European countries also registering growth in sales. However, growth and demand in developed market is relatively unstable and slowly picking up. It is also suggested that with drastic reduction in the oil prices at international level, sales in North American markets may further pick up during the current year. These patterns suggest that production, consumption as well as FDI flows still are concentrated in the hands of few large players which are still being operating from the developed markets of North America and Western Europe. States as containers of cultures, of variegated capitalisms Considering States as containers of cultures and of variegated capitalisms, it is clear that in case of Japan as one of the largest automobile producing nations in the world seem to work as the same. The automobiles manufactured in Japan carry a distinctive Japan related aspects such as manufacturing, work ethics as well as use of managerial practices. Organizations such as Toyota are largely shaped around the Japanese culture with employees being offered the job environment and the compensations which are according to the Japanese culture of support and care for all.  (Hollingsworth and Boyer, 1998) Considering the case of US, it is clear that luxury and large cars have remained one of the cultural symbols of the country. Most of the Ford and G.M. brands are considered as icons and are being followed through the generations. US society is considered as an individualistic society however, the overall authority is relatively decentralized in the country. As a result of this, the overall power distance is low and that is also being reflected in the way production and consumption patterns of automobiles are being witnessed in this also. For countries like Brazil which is also one of the key producers of the automobiles in the world, there is a high power distance and low individualism. Regulation of Trade, Industry, FDI and Economic Activities Considering the example of China, it is clear that the industry in China is being heavily regulated and controlled by the government. Despite the fact that China has been the global hub of economic activity, it is still a communist country with strong central economy. Chinese State has strong power over the economic activities besides regulating the same and as such hold more power. Since 2000, there has been a gradual shift in China towards the sectoral macro-economic policies for auto-industry. However, its overall growth has mostly been dominated by the overall-political economy of the China which resulted into the development of auto-industry along with other industries. The overall macro-economic, trade and industry policies have been shaped by the way China has taken its overall economic policy across all the industries. (Gan, 2003). In case of US, industry has been successful with agreements such as NAFTA contributing towards the significant sales in different markets. The integrated NAFTA agreement has opened both Mexico and Canada as countries which important significant number of cars from US every year. (Cooney & Yacobucci, 2007).  Overall industrial policy of the state is mostly controlled by the Chinese government whereas US government, being one of the investors in General Motors also tends to influence the overall economic activities. France is also one of the countries where the overall industrial policy of the country is heavily influenced by the government. EU is working towards making an internal market regulatory framework which can facilitate not only FDI at the regional level but also would serve as a mechanism to help manufacturers get the vehicles approved in one State and being able to sell it in member State. This policy therefore is being replicated across member States to facilitate borderless trade between the member states and also manufacturers to face virtually no trade barriers. (Ec.europa.eu, 2014) The economic stimulus provided by the US and other European governments clearly suggested that the nation-state has been instrumental in playing its role in working not only as the regulator of the economic activity but also as an stabilizing factor by ensuring that industry’s poor economic performance does not actually become contagious and harmful for other industries in the economy. States as Competitors Considering the current production and FDI trends in the automobile industry, it is clear that factor conditions are clearly in favor of countries like China and Brazil. Over the period of last five years, global production volumes of both the passenger as well as the commercial cars have shifted towards China mainly. (Florida, and Kenney 2004) China enjoys the advantage of having cheap labor, technological advantage as well as the cheap raw materials and favorable government policies. This allows China to actually dominate in terms of gaining competitive advantage due to its overall factor conditions. The demand conditions however, are evenly distributed across all the major developed markets. (De, 2011) Third quarter figures of the year 2014 indicate that the overall global demand is on the high due to strong demand from both the China as well as US. However, overall demand patterns are relatively fragmented in nature as demand from China is mostly for the US made brands. However, the demand from the Western Europe is mostly for the local brands manufactured in those States. As for as the firm level rivalry is concerned, there is a greater rivalry between the Japanese and US firms. Since China works as a manufacturing hub with none of its domestically produced brands dominating the global scene, most of the competition at the firm level is between the US and Japanese firms and as such States compete with each other by offering economic support to automobile firms. US heavily invested into General Motors and also supported Ford to survive the economic recession besides helping financial institutions to actually continue to offer easy credit to consumers in order to generate the demand at domestic level for automobiles. States as collaborators Though there are no restrictions between the States to actually relocated the production facilities across different nations however, there exist no regional trade agreements between the countries which can suggest that States are working as collaborators. The fact that major automobile manufacturers have their production facilities located in countries like China and Brazil clearly indicates that the States have actually agreed to operate the common markets without any written agreements. China has large trade surplus over US as China exports more to US than importing indicating that both countries have developed common markets where production is being done in China whereas consumption or demand for the US automobiles produced in Chins is also on the rise. Regional trade agreements however exist at the European Union level wherein EU is working as a common market with common currency at some of the member countries. (Heneric, Licht and Sofka, 2005). EU being the largest common market in the world facilitates the flow of goods, services and labor across the member states. The free flow of labor force across the Region however, is mostly concentrated into the services sector with low level of workforce mobility within the automobile sector of the Region. (Blanpain and Brulin, 2008) Mostly, States are not competing directly as for as the production patterns are concerned however, there is competition with regards to consumption and market demand. Conclusion Globalization emerged as one of the strongest challenges to the nation-state since 1970s. over the period of last 40 years, there has been a gradual advancement of an argument that nation-state may not matter because of the advancements in the communication technology which made physical borders redundant. However, with the recession of 2008 and the overall response of the respective governments, it is clear that nation-state is here to stay because of its various roles. (Fallers, 2011).  Considering the current patterns of production, consumption as well as the FDI, it is clear that nation-state exists in some form in case of automobile industry. Though the production trends have changed mostly in favor of China however, Chinese government and State is a big part of the overall economic regulation of the society and its markets. As a result of this, a unique combination of common markets has emerged wherein States are collaborating with each other on certain aspects whereas on certain issues they are in direct competition also. Japan has a distinctive advantage over others because not only the largest manufacturers in the world is a Japanese firm but the overall work ethics, managerial practices and production methods are mostly driven by the Japanese culture. With regards to consumption, there is a direct competition as developed markets have largely become saturated with low demand. 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