The Automobile Industry - Term Paper Example

Forces and Trends Step Research three forces or trends from the remote or industry environment. Introduction The Automobile Industry today is becoming increasingly competitive, with the shift in global economies, the continuously rising fuel prices leading to a simultaneous rise in consumer preferences towards fuel efficient cars, the coming of age of Western economies and the emergence of Asian super powers such as India and China. These external environmental factors along with certain significant global issues such as, growing concern for environmental protection, and the trends towards greener and cleaner cities, governmental initiatives to reduce carbon emissions, and issues concerning protection of the ozone layer, the need for an efficient and cost effective human resources etc are driving the industry to adopt appropriate measures for sustaining their competitive market positioning. These trends and forces are playing significant role in changing and reshaping the industry. (source: The Wall Street Journal) The key trends observed in the automobile industry are discussed below: i. The development and emergence of Asian countries, such as India and China as strong economic powers. ii. The growing demand for competent and cost effective Human Capital. iii. Increasing focus on Energy Diversity (A) Detailed Description of the Force / Trend These factors are discussed in depth as follows: The development and emergence of Asian countries, such as India and China as strong economic powers: Emerging Asian economies such as India and China, are posing a threat to global economies by threatening to disrupt the global equilibrium through rapid growth. The continuous economic reforms in the countries has driven them towards economic liberalization, opening up avenues for better growth and prosperity, better employment opportunities and as a result increased spending power. Such rapid growth is expected to fetch a GDP of 7 – 8% over the next decade. India, especially, is expected to join the ranks of the fastest growing economies in the world along with 34 other developing nations, and the world’s third largest economy by the year 20201. Such shifts in powers have significant implications on the automobile industry, affecting the major players in the industry, including Toyota. The development of cheap, cost effective, small cars, such as Tata Motor’s proposed $25002 car, for instance, has led to a significant rise in the popularity of such Asian destinations as a profitable business option. The rising trends amongst the Asian countries of adopting low cost strategies along with the other relevant factors such as availability of cheap labor have enabled them to manufacture such low cost products efficiently. The selection of India as “the smartest location” for its upcoming global subcompact by the Japanese auto giant Toyota Motors, bears testimony to the fact that some of the most influential names in the automobile industry have now started taking notice of the sudden shift in trends and have wisely adapted to the requirements of the rapidly changing marketplace. The growing demand for competent and cost effective Human Capital: The shifts in the industry trends and the emergence of a multi polar global economy together have brought about tremendous change in the industry. The availability of immense employment opportunities at diverse locations irrespective of geographical boundaries, and the rise in demand for competent and cost effective and productive employable workforce has assumed greater significance. The countries like India and China, have achieved immense growth and profitability in terms of designing and developing low cost cars, mainly by acquiring cheap labor and high talent human resource which is easily available in the developing countries, as opposed to its western counterparts, where the wage levels are comparatively higher. This acts as a deterrent in the cost reduction initiatives taken by the companies and hence it is of utmost importance that these companies acquire talents through other means such as outsourcing or by developing smart “people strategies” thereby accelerating the development of its potential workforce, and initiating recruitment measures to match the rapidly changing demands of the new economy. Increasing focus on Energy Diversity: An increased consciousness about the ecological and environmental factors has been observed in recent times. Energy conservation and environmental protection has been the focal points in debates across the globe. This has led to the shift in consumer preferences who are now increasingly demanding cost efficient vehicles. Also the rising fuel prices have reduced the affordability amongst the consumers which is also one of the reasons why consumers have shifted their preferences by opting for energy saving automobiles. The factors such as these have had major implications on the automobile industry as a whole driving the auto giants to develop cost efficient energy saving means of transport. (Source: www.greencarcongress.com) Relevance of the Force / Trend to Toyota: The companies in the industry, being a part of the larger group, do not operate in isolation and hence are largely affected by the trends and forces in the external environment. It is thus of utmost significance for these companies, to take note of such changes and design and develop appropriate strategies to combat such forces and retain its competitive positioning in the industry and keep its competitors at bay. Toyota has successfully adapted to the changing environment and adapted strategies to strengthen its position in the market. In reaction to the rising Asian economies, Toyota has announced plans to broaden its base by venturing into developing countries such as India, and take advantage of the immensely competent labor force to drive its sales and ultimately safeguard its revenue flows. The launch of its hybrid car, the Prius, was a conscious decision on the part of the management to deal with the rising fuel prices as well as the shift in environment conscious consumer preferences towards a fuel efficient car. Like other companies, Toyota too aspires to gain on its people power. This is achieved through continuous motivation of its employees and setting targets that the employees should achieve, together with a healthy working environment and motivated managers adds to the company’s workforce strength. Toyota’s Strategic Adaptability to combat such forces / trends: Toyota is the world leader in the automobile industry and world’s largest automaker with a market share of 15% in the U.S. alone3. It is expected to make a foray in the small car business in India, aiming to conquer 15% of the passenger vehicle market in the country by 20154. The company is planning to capitalize on the fast growing automobile market in India by launching a series of new vehicles in the coming years5. The company plans to grab a substantial market share of about 15% world wide by the year 20106. Toyota was the first company to launch a hybrid car which went on to become the largest selling car in the U.S. According to some automakers, the hybrid cars are the future of the automobile industry7. The company is financially strong, ¥60 billion to incorporate any changes in its strategies and adapt to the changing global economy. Step 2 “The remote environment comprises factors that originate beyond, and usually irrespective of, any single firm’s operating situation: (1) economic, (2) social, (3) political, (4) technological, and (5) ecological factors”8. The Toyota Motor Corporation has substantial financial strength to adapt to the rapidly changing global economy and has already developed and launched appropriate strategic measures to sustain its competitive position in the market. To deal with the rising fuel costs, which has hit the world wide markets, with some of the automobile giants reporting drastic fall in sales, Toyota’s hybrid car Prius is becoming increasingly popular and has gained acceptance amongst the energy conscious and environmentalists alike. “Economic factors concern the nature and direction of the economy in which a firm operates. Because consumption patterns are affected by the relative affluence of various market segments, each firm must consider economic trends in the segments that affect its industry9.” The economic factors facing the industry currently include the rapid rise of the developing economies such as India and China, the rapid growth of the automobile industry in those countries, the development and manufacturing of low cost vehicles etc which are posing a threat to the existing automobile giants. Similarly, the social factors such as change in customers’ preferences towards smaller fuel efficient cars, driven by the rise in fuel prices as well as the ecological factors such as growing consciousness on the part of the government as well as public at large towards the green house emissions have led to the need for developing hybrid cars. From the facts discussed in the case above, the Toyota Motor Corporation, seems to have appropriately designed strategies that shall help in ensuring its profitability and leadership in the automobile industry. REFERENCES: Mund, J. A. (2005). India Rising: A medium term Perspective, Retrieved July26, 2008, from Deutsche Bank Research. Web site: www.dbresearch.com. N.A, (2007). The Race to build the New $3000 car, Retrieved July 26, 2008, from Edmunds. Web site: www.edmunds.com N.A. (2007). America’s Most Admired Car Companies, Retrieved July 26, 2008, from CNN business news. Web site: www.money.cnn.com. N.A. (2007), Toyota’s foray into small cars could begin with India, Retrieved July 26, 2008, from The Hindu Business Line. Web site: www.thehindubusinessline.com N.A. (2008), Toyota to make a foray in the small car business in India, Retrieved July 26, 2008, from The Economic Times. Web site: www.economictimes.indiatimes.com Shirouzu N, Spector M, Valcourt J, (2008). Retrieved July 26, 2008, from The Wall Street Journal. Web site: www.autonews.com, July 26, 2008. Pearce, Robinson, (2004), Strategic Management, The McGraw Hill Companies, Pp.79. Read More