Impacts of Globalization on Automobile Industry - Essay Example

IMPACTS OF GLOBALIZATION ON AUTOMOBILE INDUSTRY Introduction The increased technological advancement has made the world realize its potential. It has facilitated the process of globalization, which has brought nations closer together. Reaching another country no longer requires one to travel, but use the technological means to the destination. Moreover, the process of globalization has eased trade among nations and opened the boundaries, which had been a barrier over the past years. The globalization has more benefits besides the economic impacts, but it also influences the social life of the world population. It has promoted cultural exchange and diffusion from one region to another. Fashions diffuse from region to another without encountering any barrier. On the political context, globalization has yielded democratic governance hence increasing citizens’ participation, as well as good governance. One of the most outstanding impacts of globalization in relation to economic aspects is its effects on the automobile industry. For the past three decades, the world has realized a revolution in the automobile industry in terms of production, purchase, use, and repair among others. There is a change in the way people access motor vehicles today compared to previous years when production and purchasing were pegged on certain parameters such as location and prices. Today, the production of the automobile takes place in nearly every developed nation. People no longer look to the East for the production, but most countries produce motor vehicles. Similarly, it has changed and influenced the automobile industry in the developing nations as well as the marketing strategies. The rest of the paper will discuss the influence of globalization on markets and marketing strategies, global production and supply chain, current developments and key players among other issues. Influence on markets and marketing strategies Globalization has greatly influenced the markets and marketing strategies of major players in the automobile industry. The major players include General Motors (GM), Toyota, Ford, Honda, BMW, Chrysler, and Volkswagen (Sturgeon 2009). All these key players operate in the global marketplace and compete fiercely for market share. The process of globalization has eased the production of vehicles due to increased sales. For instance, globalization promoted the establishment of overseas facilities and merger opportunities between giant automobile makers. This has led to increased production as well as marketing. The process of globalization has facilitated the key players to market their brands as well as to tailor the products that meet the preferences of overseas clients (Sturgeon 2009). Moreover, the effects of globalization on markets and marketing strategies began with the advancement of technology. It was when Ford Motor Company had a mass production of vehicle models and exported from US to European nations and Japan used in the World War I and II (Sturgeon 2009). Similarly, the advancement of the industrialization led to the increased growth in the Japanese and German market, hence creating demand for automobiles (Sturgeon 2009). As the need for vehicles which are tailored to meet the market demand increased, Japan produced more fuel-efficient cars as compared to the US. This occurred because of the oil embargo of 1973-74 (Sturgeon 2009). Hence, there is a strong indication that automobile companies are changing their marketing strategies to meet the needs of the markets. Similarly, the increasing competition because of globalization is making automobile industry to devise ways of meeting their mission and goals in acquiring market share. For instance, Japanese automakers have devised an innovative method where they modify the US manufacturing models and use technology to increase competition of their products. Besides, there are some emerging trends as a marketing strategy and capturing market share that different leading automobile use (Scherk & Benchmann 2010). These are new practices because of the globalization process. Some of them are discussed below. Global market dynamic - the leading automobile manufacturers are continuously investing in production facilities in the emerging markets. This aims at reducing the production cost as well as to bring the products near the clients. Some of the emerging markets for the automobile industries include Latin America, China, Malaysia, Africa, and Southeast Asia (Scherk & Benchmann 2010). Commercial strategic partnership - the big three automobile makers, namely GM, Ford and Chrysler have merged with European and Japanese automakers to consolidate the market and reach the potential client overseas (Scherk & Benchmann 2010). Similarly, it has been a trend caused by globalization to help enter the foreign markets and increase shares. Industry consolidation - the increasing competition among the leading automobile manufacturers because of globalization and positioning in the foreign markets, has divided them into three categories. The first tier is comprised of GM, Ford, Toyota, Honda and Volkswagen as the remaining tiers are other automobile manufacturers who are trying to merge to compete the first tier (Scherk & Benchmann 2010). Influence on emerging markets The impacts of the globalization on automobile industry do not just stop with the makers increasing their market share but the impact on the emerging economies. Globalization has increased access of automobiles in the emerging markets, hence creating an opportunity for the makers. The increased opportunities have also come with a different cost to the market as well as to the makers. Overall, the impact is enormous and poses negative and positive effects. The emerging markets such as China, India, Eastern Europe, and Africa have created a high demand for the automobile. China is currently the biggest automobile market in the globe with the expectation of selling over 23 million units this year (Hirsh & Kakkar 2015). Moreover, the process of globalization has enhanced the Chinese automobile makers to be in the top three in terms of the output. Moreover, India ranks number four in terms of purchasing power. Many believe that the current process of globalization, which increased Indians purchasing power, will make it surpass Japan in the next ten years. Additionally, many believe that the Indian economy will reach 60% the size of US economy hence likely to increase the demand for the passenger cars (Hirsh & Kakkar 2015). Additionally, the process of globalization has eased the time it takes a client living in developing nations to acquire a vehicle. Many automobile makers have set their assembly plants in the emerging markets to bring the car next to the people (Hirsh & Kakkar 2015). Through this, there is the improvement of services as well as customer care. This has led to increased business opportunities and advancement of trade. More people can access vehicles and know about them without traveling to Japan or US to have a look. The development of showrooms have also contributed and influenced the uptake. Bringing the car closer to the people in the emerging markets has increased the uptake as well as the economy of such nations. Global production and supply chain Globalization has led to increased production of vehicles. This in turn has affected the supply chain due to demand. Although there are many automobile makers, they are located in different locations around the world making them face different experiences in the supply chain. For instance, the high demand for vehicles has led to challenges in the supply chain where some makers have failed to deliver and meet the requirements. For instance, the frequent natural calamities hitting Japan have slowed the production of Toyota brands. This implies that there has been a delay in the delivery of units compared to periods before the disasters. In other instances, some makers with devolved plants have recorded high growth because of the ability to meet the new market requirements. Similarly, globalization has led to problems in the supply chain due to distance as well as the logistical arrangement in delivering the cars. For example, different regions have different legislations, which they implement to control the entry of goods including vehicles. This has affected the supply chain through high taxes imposed as well as laws that the suppliers have to observe (Satish 2014). Because of these issues, manufacturers sometimes experience high costs in delivering the vehicles to overseas or foreign markets compared to delivery in the domestic market. This might also lead to piling up of units to be provided hence acting as a challenge. It also creates a bottleneck supply chain where production is increased with low delivery. However, the supply chain problem is not encountered in all the markets, but the ones with policies regulating motor vehicle delivery. The global automobile production has been on a steady growth with some decline witnessed because of financial crunches that many nations undergo. For instance, the 2012 production stood at over 60 million units (Satish 2014). This was an increase after declining in production for the years 2008 and 2009 because of the global financial crisis. Currently, the global motor vehicle production increases at a rate of 3% yearly (Satish 2014). This is a strong indicator that globalization is pushing the industry and influencing the production. Globalization has promoted a shift in the production and purchasing power of many nations. For instance, China stands as the nation that produces the most cars. It is approximated that one out of four cars produced in the world comes from China (Satish 2014). In 2006, China was ranked the third largest car market in the world because the sales per unit increased by 40% to over 4.1 million units. As the process of globalization continued and strengthened, China became the largest car market (Hirsh & Kakkar 2015). The increased incomes, low vehicle penetration, credit availability, and falling car prices might have contributed making others outdo the position held by Japan. Although this number is high, the large population in China makes the vehicle penetration stand at 40 vehicles per 1000 people. This number is small compared to 700 vehicles per 1000 in the G 7 markets (Hirsh & Kakkar 2015). Globalization has created a high demand for vehicles in Asia and Oceania making them produce more than half of the cars compared to Europe, which produces a third. Ethical issues and considerations Globalization of the automobile industry is posing many ethical issues that require considerations. Over the past decades, changes have been realized in the third world countries or developing nations experiencing problems. Some of these ethical issues work against the developing nations, hence slowing their developments. First, jobs are an ethical issue emanating from the globalization of the automobile industry (Yucel & Dadelen 2013). It has placed jobs in the developing nations in jeopardy. This is because it leads to the transfer of skilled workers such as engineers, lawyers, doctors, mechanics to the developed nations that has a high demand for them at a higher pay. The high rate of labour transfer from the developing to first world nations is leading to loss of the workforce in the third world. Moreover, the tendency benefits the first world countries as they outsource cheap labour from the third world. Secondly, brain drain is another ethical issue emanating from the globalization of the automobile industry (Francis 2014). The increased opportunities in the first world countries are creating lucrative opportunities for the talented and educated personnel from the developing nations. It increases the exodus of educated individuals to overseas markets to aid in the production. Therefore, home-grown nations lack the skilled and educated personnel such as mechanics and engineers that can help them move and become competitive. Thirdly, the depletion of natural resources is another ethical issue and consideration from automobile globalization. The State of the World Report of 2006 shows that the global ecological capacity is insufficient to satisfy the ambitions of US, Europe, China, India, and Japan. This also applies to other parts of the world for sustainability. Because of this, globalization has put pressure on the available natural resources such as a tropical rainforest in Brazil among others for fuel extractions as well as grazing pasture (Yucel & Dadelen 2013). This is a concern because it endangers the wildlife and has tremendous effects on the oxygen level in the whole world. Therefore, the globalization has led to increased depletion of natural resources making it disastrous. The improved means of transport in different parts of the world because of globalization has led to increased infectious diseases. However, this phenomenon happened in the fourteenth century when the Black Death wiped about 50% of the European population because of its spread from Asia (Howell 2002). The increased and modernized means of transport from the globalized automobile industry has led to the diffusion of diseases such as tuberculosis and other respiratory diseases. The smoke or fumes produced from diesel driven vehicles pose environmental problems, hence an ethical issue and consideration. Lastly, the increasing globalization of the automobile industry is causing financial interdependency among nations. This implies that one issue affecting a nation can spread to influence all the depended nations. For instance, the several calamities that hit Japan in the past years influenced the production of Toyota, which also affected the economies of emerging markets that rely on that brand for transport to generate revenues. Similarly, the collapse of US subprime almost led to worldwide depression with Europe being affected most. Impact of global regimes and trade blocs Globalization of the automobile industry has changed the international trade and increased the emergence of global value chains. It has led to multinational companies to position themselves in the foreign markets to reduce the cost of production and maximize their market opportunities. Moreover, the structures of global trade flows have shifted with the developing economies participating in the global trade, hence increasing their share in the automobile industry. The globalization of the automobile industry has witnessed increased changes in the global regimes and trade blocs. There is more importation of vehicles from the developed nations to third world countries. Many regimes in the third world countries have opened up their market for the importation of vehicles because of the perceived advantages. Sometime in the last few years, the demand for the oil went up in the international market because of its increased consumption. This had positive effects on the nations trading in oil and increased the market share on the same. These regimes gained a substantial generation from the increased demand, hence reaping positive benefits (Fischer 2013). Despite globalization opening opportunities for many nations, as well as removing barriers in major trading blocs, large economic blocs, still dominate the geography of international trade (Lansbury Wright & Baird 2006). For instance, North America, Europe, and Japan dominate the international trade on the automobile industry, and they belong to trade blocs. Research indicates that Germany, US, and Japan account for a quarter of global trade, though they are experiencing competition with emerging economies. Hence the figure is likely to change in the coming days (Fischer 2013). Moreover, the G 7 nations account for half of global trade, and this dominance has endured for the last ten years besides the existence of globalization. Similarly, developing nations in Asia such China is accounting for a larger share and doing significantly enough in the market. Moreover, there are significant changes experienced in other trade blocs such as Trans-Pacific trade as the process of globalization has made it grow faster compared to Trans-Atlantic trade (Fischer 2013). Globalization has led to global trade flows where different nations pursue export-oriented economic development policies (Fischer 2013). They do this by infrastructure developments, subsidies, as well as exchange rates as the tools of achieving their targets. The developing economies mostly employ this strategy because of the difference in the level of developments as well as the trade imbalances. Because of this, several developing nations have opened their boundaries and removed trade barriers to allow capital flow from the developed nations (Otter & Balasingham 2013). In many nations today, there is almost a brand assembly or showroom for every automobile. The trade blocs such as NAFTA and European Union have led to regionalization to make them competitive in the automobile industry through international trade, proximity, and regional connotation. The closeness of economic entities eases their trade due to lower transport cost, reduced delays, standard customs procedures and well as the integration of cultural values (Fischer 2013). The process of globalization has strengthened the trade relation between trade blocs in Western Europe and North America. Similarly, Japan, China, Korea, and Taiwan have also enhanced its trade as they integrate their economies to form trade blocs. Current trends and developments The automobile industry has been enjoying steady growth and increased sales volume over the past years. The annual sales and profitability have been increasing until it reached a peak in some nations. Despite all these trends witnessed, the future of automobile sale is uncertain. This is because of the many challenges that the industry undergoes. Similarly, there are a number of changes that are influencing the automobile industry, and driving change. The three drivers of change, which have set the trend, are discussed in the subsequent paragraphs. One of the latest trends that bring the change is the shift in consumer demand (OECD 2011). Consumers are in the rethinking mode where they are changing their long love with particular brands. Similarly, they are viewing cars as transportation machines. However, this may not have a significant impact on the sales volume but will affect the number of people willing to pay for the automobiles. The changing preferences among consumers are also affecting the automobile differentiation because of improved quality of vehicles. The customers are demanding sophisticated systems at a low price, hence challenging the automobile industry. Secondly, there has been expanding regulatory requirements in some nations, hence bringing change in this industry (OECD 2011). The tighter corporate fuel economy regulations in the US and other parts of the world are proving to be expensive for the manufacturers to comply. Similarly, the regulators are demanding a safety-related features such as a backup camera to be included in the new models. The competing nations also create some barriers to their competitors in order to influence their market penetration. Moreover, other nations do not allow certain types of vehicles hence blocking penetration in the market. For instance, there are many nations in the developing countries that do not allow hybrid vehicles and electric cars in their market (Marquis, Hongyu & Lizuan 2013). Lastly, there is increased availability of data and information available to consumers both in the emerging market and in the developed nations (Hirsh & Kakkar 2015). Information concerning the vehicle usage has been made available to people, and this has an effect on influencing the market share as well as luring people towards buying people. This has made the consumers from every part of the world to know the prices, specifications, discounts, quality, and performance of the vehicles without traveling. It also gives them a chance of greater bargaining power. Evaluation of industry performance in the current economic climate It is no doubt that the number of vehicles has increased on the road, and it seems the trend will continue. However, there is a disparity in the number of vehicles across the nations as some have an increased number of vehicles and sales per unit while others are declining in the unit purchase. Averagely, the industry is still performing at a higher rate across various markets. The current economic climate also plays a role in influencing the performance of different brands, as well as nations. One of the issues in the current automobile industry is the unevenness of the global market. Many analysts believe that the US market may rise in the sale per unit to over 16 million up from 13 million in 2008 (Hirsh & Kakkar 2015). However, the same figures may not be witnessed in the European market, which has been slow for the last six years. Additionally, there is decreasing sales in the Russian and South American countries. As of August 2014, the sales in these two countries were down by 25% and 15 % respectively (Hirsh & Kakkar 2015). Moreover, other markets such as India are showing inconsistency in market performances. China is also reducing its uptake although it is still the world largest vehicle market (Gan 2011). Despite the downward and upward trends witnessed in the market, the makers are optimistic that 2015 is a promising year, and the performance will increase or stabilize. Currently, many manufacturers if not all are working and reacting strategically to the shifts in demand and given them priority to see a reversal. Moreover, many manufacturers are establishing a good relationship with customers and customizing their vehicles in ensuring they meet the demand and preferences. The manufacturers are adapting to new technologies, which reduces the cost by developing vehicles, cheap and destined for individual segments. This approach aims to attract and acquire more buyers from the emerging markets to have a better competitive advantage. Similarly, makers are responding to market fluctuation and uneven performances by reducing the cost of production to lower the price per units. Hence, various manufacturers are complying with different laws that nations have placed to avoid being excluded from the market. Conclusion Globalization of automobile industry brought positive and negative impacts on the developing and first world nations. It has led to increased number of automobiles in the every corner of the world as opposed to earlier years before globalization. The third world countries can now afford vehicles at a lower cost and without wasting time traveling to assembly plants since they import vehicles. Besides, the developed nations have benefited much than the developing nations because of the increased sales from the open market. However, the trading blocs such as NAFTA among others have not opened their borders for importation hence promoting unfair trade and imbalance between first and third world countries. The ethical issue is also a matter of concern among many nations because of globalization. Although the world has realized uptake in the automobile industry, there are uneven performances in the market due to the current economic climate. References Fischer, B 2013, Globalization and the competitiveness of regional blocs in comparative perspectives. Available from http://ageconsearch.umn.edu/bitstream/26182/1/dp980050.pdf [April, 7, 2015] Francis, E 2014, Evolution adds brains to assembly line, Automotive Industries, p. 14, Gan, L 2011, Globalization of automobile industry in China. CICERO Working paper 2011:9 Hirsh, E. & Kakkar, A 2015. 2015 Auto Industry trends. 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