Market Model Patterns of Change in Automobile Industry - Research Paper Example

? Market Model Patterns of Change Market Model Patterns of Change in Automobile industry The oligopoly nature of the automobileindustry has made it experience changes that are affecting the oligopolistic market model. The pattern of change is evident in its production, international trade changes, and supply chain as well as pricing. The paper examines automobile industry and analyzes the patterns of change that characterize the industry. Industry Description Automobile industry is one of the global most oligopolistic industries. The market products of this industry are spread world wide and dominance is common among the companies dealing with automobiles. The business expansion that has characterized many companies in the industry has led the expansion in the size of large companies and eventual attainment of a competitive advantage over smaller companies. Currently, the industry is experiencing enormous changes as a result of changing customer needs, emerging markets, and entrance of new competitors, technological advancement, and the strict environment regulations due to substance emissions (Blum, 2009). The changes have affected the demand, value chains and markets that characterize the industry. This has led to the transformation of the market into a more mobile model that is more competitive. The industry players and the new entrants have been forced to apply new competitive strategies that will enable sustainable success in the competitive industry. Pattern of Change Both the emerging and mature markets in the automobile industry are characterized by risk and opportunities. The global automobile industries have engaged in price wars crating frequent capacity overlap and rivalry. Therefore, the oligopolistic market model has been transformed into a competitive model. The competitive pattern of change is evident in its production, international trade changes, and supply chain and pricing. Production The industry has witnessed a high degree of global integration in production activities. According to Gereffi, (2008), the value added chain is distributed at the global level with the different production stages being located in different locations. Historically, the size and growth of the domestic market determined the production location decisions. However, the lowering of the trade barriers and advancements in globalization has changed the tradition whereby the production location decisions are influenced by the international competitiveness. The international competitiveness is a product of the level of different tasks within the industry due to the vertical disintegration of global production. This is a change from the traditional business norms whereby the global competitiveness was determined by the level of the industry. Variation in Production Table 1: Top 20 Motor Vehicle Producing Countries  China 18,418,876 United States 8,653,560  Japan 8,398,654  Germany 6,311,318  South Korea 4,657,094  India 3,936,448  Brazil 3,406,150  Mexico 2,680,037  Spain 2,353,682  France 2,294,889  Canada 2,134,893  Russia 1,988,036   Iran 1,648,505  Thailand 1,478,460  UK 1,463,999  Czech Republic 1,199,834 Turkey 1,189,131  Indonesia 837,948 Poland 837,132 Argentina 828,771  Italy 790,348 Source: http://oica.net/category/production-statistics/ Table 2: Annual Change in Production in Automobile Industry Year Production Change 1997 54,434,000   1998 52,987,000 -2.7% 1999 56,258,892 6.2% 2000 58,374,162 3.8% 2001 56,304,925 -3.5% 2002 58,994,318 4.8% 2003 60,663,225 2.8% 2004 64,496,220 6.3% 2005 66,482,439 3.1% 2006 69,222,975 4.1% 2007 73,266,061 5.8% 2008 70,520,493 -3.7% 2009 61,791,868 -12.4% 2010 77,857,705 26.0% Source: http://oica.net/category/production-statistics/1999-statistics/ International Trade The international trade is characterized by the dominance from a small number of companies. However, the industry faces segmentation that has made it more regional than global. The industry is also characterized by cost pressures, overcapacity and low profitability (George and Kirkpatrick, 2004). This leads to transaction costs especially due to overinvestment in the markets where an increase in the capacity has exceeded the realistic short term expenses. The geographical spread in the automobile output and the growth in the sales among international dealers have not been accompanied by the distribution in the ownership of the automobile sector. Channels of Supply They are normally supplier-oriented with more suppliers currently assuming wider roles in the automobile trade. The have been increasingly involved in such roles to eliminate channel conflicts and cannibalization which inhibits effective pricing and decision-making. Effective supply chains are critical ingredients in generating optimal customer prices (Doran, Hill, Hwang and Jacob, 2007). Stable markets require a pricing strategy that is well defined, actionable and uniformly communicated through the company by the combination of strategic objectives and data analysis. Worker motivation should attain the effective standards to enable them promote competitiveness. Segmentation Statistics and Changes in Production Global Automobile Market Segmentation Region (% Share, by value, 2003) United States of America 42.1 Europe 28.3 Asia-Pacific 15.2 Rest of the World 14.3 Total 100.0 Source: ANFAVEA. 2006. Statistical Yearbook of the Brazilian Automotive Industry, Sao Paulo. The segmentation is a product of application of market strategies that promotes the competitive advantage that is more superior to that of the industry competitors. Factors That Affect Competitiveness Technology Technological innovation, adaptation and diffusion shape the industry’s capability, production patterns, and the quantity as well as the quality of employment in the sector (Miyoshi, 2011). Technology can be a source of convergence and divergence among firms. Factors that determine the relationship between technology and convergence or divergence include customer requirements and the ability of the firm to reproduce technological and organizational models. Technological adoption among the industry firms should be examined in relation to the existing institutional frameworks that shape the market. This leads to evolvement of superior models that promotes the current technology and eventual establishment of a competitive advantage. The labor market characteristics and ideas can create a divergent tendency among firms leading to production of automobile products of high quality. The industry players should introduce new, efficient technology that improves machine functioning and increases output. Market Homogeneity, Product Design and Location Patterns Competitiveness is shaped by the consumer preferences. The establishment of firms over wider locations by many automobile firms is due to the diverse customer preferences. Many firms have adopted the strategy of establishing the companies close to customers to ensure that they maintain a constant supply and understand their changing preferences. The industry has an obligation of conducting quality awareness programs to assure customers of the high quality for their products. Supply Chain Trends The organization of the supply sector affects the manner in which the industry products reach the customers. The supply chain should be convenient for easy access of the target market. For instance, according to Veloso and Kumar (2002), the automobile industry has witnessed a growing role of the suppliers whereby they have assumed a greater share of manufacturing, design and logistics responsibilities. Behaviors Resulting From Transaction Costs Behaviors that result from such transactions include transacting with a large number of suppliers without consideration of the economies of large scale. The industry will be overwhelmed with inefficient inter-company information sharing and investing in unprofitable assets. Additionally, most of the economic agents would behave opportunistically to drain the rent accruing from the automobile assets. Strategies for Dealing with Transaction Costs To ensure low transaction costs, the industry players should undertake prolonged transactions with a small set of suppliers. They should also apply the economies of big scale when transacting with the small group. The firms should enhance information sharing to reduce asymmetric information. Additionally, they get used to the use of non contractual, self-enforcing safeguards with an indefinite time period as well as channeling investment in co-specialized assets. Conclusion The automobile industry is oligopoly in nature whereby the small number of companies controls the global business. The market products of the automobile industry are spread world wide and dominance is common among the companies dealing with automobiles. Factors that affect competitiveness include Technology, Supply Chain Trends, Market Homogeneity, and Product Design and Location Patterns. References Blum, R. (2009). The Global Crisis and Restructuring in the Automotive and Metalworking Industries. International Metalworkers’ Federation – IMF, Metal World 2: 18–22 Doran, D., Hill, A., Hwang, K., & Jacob, G. (2007). Supply chain modularization: Cases from The French automobile industry. International Journal of Production Economics, 106(1), 2-11. George, C., & Kirkpatrick, C. (2004) ‘Trade and Development: assessing the impact of Trade liberalization on sustainable development’, Journal of World Trade, 38(3): 441-469. Gereffi , G. (2008). Value Chains, Networks and Clusters: Reframing the Global Automotive Industry. Journal of Economic Geography 8: 297–321. Miyoshi, H. (2011). Technological innovation and public policy: the automotive industry. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan. Veloso, F. & Kumar, R. (2002). The Automotive Supply Chain: Global Trends and Asian Perspectives. Asian Development Bank Economics and Research Department (ERD) Working Paper Series No. 3 (January). Read More