Global Automotive Industry - Essay Example

? Use an extended example to discuss critically how the ‘sector matrix’ framework is useful for analysing demand and supply linkages in an industry –Automotive industry Table of contents 1. Introduction 3 2. The ‘sector matrix’ framework – description and characteristics 3 3. The ‘sector matrix’ framework for analyzing demand and supply linkages in the automotive industry 7 3a. Global automotive industry – overview 7 3b. Analysis of demand and supply in the automotive industry using the ‘sector matrix’ framework 10 4. Conclusion 11 References 13 1. Introduction The evaluation of an industry’s performance is commonly developed using a series of criteria. The conditions in the industry’s environment, in all its aspects, have a key role in understanding the industry’s perspectives for a long terms growth. The use of theoretical frameworks and models can also help to check the status of an industry, either in the short or the long term. Current paper focuses on the evaluation of global automotive industry in regard to a particular aspect: the industry’s supply and demand chain. The sector matrix framework has been used for exploring the issue under examination. Two well known theoretical frameworks, the Value Chain Analysis model of Porter and the Product-Commodity Chain of Gereffi have been used for developing an effective sector matrix framework, as aligned with the needs and the challenges of the particular industry. It is proved that the current performance of automotive industry in terms of supply/demand could be improved by controlling rapid expansion so that time is available for responding effectively to the needs of each market. 2. The ‘sector matrix’ framework – description and characteristics The sector matrix framework used for the evaluation of the automotive industry would be based on the following fact: economies worldwide are not equally developed. More specifically, there are economies that have been able to promote technological advances and commerce, achieving an important growth (Cohen 2012). Reference should be also made to countries with quite low economic and commercial performance; these countries have not managed to follow global technological advances (Cohen 2012). The evaluation of the performance of the automotive industry globally would be based on the perception that economic growth around the world is not equally; therefore, the findings of the sector matrix analysis would be related primarily to developed and emerging economies that have the potential to support the development of automotive industry. Another issue that should be taken into consideration when developing the sector matrix related to the automotive industry is the following one: the specific matrix is based on different market and organizational elements; these elements are also included in other theoretical frameworks, such as the Porter’s Value Chain analysis (Graph 1) and the Gereffi’s Product/ Commodity chain. The use of these frameworks when developing the sector matrix analysis of the automotive industry would increase the credibility of findings. The elements of these two frameworks are briefly discussed below. Graph 1 – Porter’s Value Chain analysis framework (source: Bachelor of International Management) The Value Chain Analysis of Porter is presented in Graph 1, above. According to this framework, ‘each company can be represented by a Value Chain’ (Overbeck 2009, p.26). This Value-Chain is consisted by a series of activities that can be characterized either as primary or support activities (Overbeck 2009). The activities that are of critical importance for the supply chain of an organization are the primary ones (Overbeck 2009); still, the support activities are necessary for the effective development of primary activities (Overbeck 2009), meaning that primary activities may face problems and delays in case that they are not combined by the support activities, as included in the Porter’s framework. Among the activities included in the Porter’s model, particular emphasis should be given on logistics, both inbound and outbound; the particular activity reflects the collection and distribution of information related to all aspects of the production process. As for the Gereffi’s framework, this one is presented in Table 1 below. Table 1 – Gereffi’s Product/ Commodity Chain (Source: Gereffi, 1999, p.9) Gereffi has developed the above matrix by focusing on the automotive industry. However, the particular framework can be also used for other industrial sectors, as indicated in Table 1 above. The framework of Gereffi is based on the following rule: within each organization two commodity chains can be identified: those driven by customers and those driven by producers. The drivers of these chains are differentiated, according to the industrial sector in which each organization operates. A framework similar to that of Giraffi is the one developed by Vanek (2002). The particular framework, Graph 2 below, emphasizes on the relationship between product and people, as parts of a supply chain. Graph 2 – Relationship between product and people (Vanek 2002, p.17) In regard specifically to the sector matrix analysis there are certain issues that need to be highlighted. The sector matrix analysis can offer a more accurate view of an industry’s performance in regard to supply/ chain demand. Other frameworks focusing on the same subject, such as the Value Chain Analysis framework of Porter, fail in offering explicit explanations on ‘the corporate actors that influence the performance of an industry’ (Haslam et al. 2000, p.104). However, the use of existing theoretical frameworks related to the supply chain, such as the Porter’s framework, is often necessary in order to ensure that all aspects of an industry’s/ organization’s supply chain are addressed. 3. The ‘sector matrix’ framework for analyzing demand and supply linkages in the automotive industry 3a. Global automotive industry – overview The global automotive industry is characterized by the dominance of certain organizations. In USA, there are just three firms that share the higher percentage of the industry’s share: ‘General Motors, Ford Motor Company, and Chrysler Corp’ (Giraffi 1999, p.3). According to Wright, in 2012 ‘US car sales jumped by more than 13 per cent’ (Wright 2013). The industry’s growth seems to be related to specific trends, such as the preference for vehicles based on green technology and the increase of interest on the safety potentials of each vehicle (Kacher 2012). The global automotive industry suffers by an important problem: ‘production overcapacity’ (ILO 2010, p.51). In 2007 the production capacity of the industry was estimated to ‘90 million cars while the demand for the same year was just 69.5 million with decreasing trends’ (ILO 2010, p.51). On the other hand, due to the recent recession, the payment of suppliers in the automotive industry has become problematic (ILO 2010). In fact the average period that the industry’s suppliers have to wait for their payment has been estimated to 90 days, but in many cases this period is significantly extended. One of the key issues in regard to the global automotive industry, as also in other industries worldwide, is the retention of customers. According to a report published by KPMG there are specific factors that can influence customers’ loyalty. These factors are presented in Graph 3, below. These factors should be also taken into consideration when developing the sector matrix of the global automotive industry. Graph 3 – Factors to retain customers (source: KPMG 2008, p.5) 3b. Analysis of demand and supply in the automotive industry using the ‘sector matrix’ framework The supply chain management of the automotive industry is characterized by the increasing efforts for promoting green technology. These efforts, which are not always successful, have led to the establishment of supply chain management practices that are related solely to green technology/ principles. This fact is made clear in Table 2 below, where the differences between the green supply chain management and the conventional supply chain management are presented. These differences should be taken into consideration when developing the sector matrix for the supply/ demand chain of the automotive industry. Table 2 – Differences between green supply chain management and the conventional supply chain management (sources: Luthra et al. 2011, p.235) The sector matrix framework, as influenced by Porter’s and Gereffi’s frameworks, of the automotive industry would include the following parts: a) reference should be primarily made to the structure and organization of the production process (Haslam et al. 2000, p.104); the above part of the sector matrix framework reflects all the tasks/ activities that are normally incorporated in the production process, from the ordering of the raw material up to the delivery of the finished product to the point of sale (Haslam et al. 2000); b) at the next level, the sector matrix framework would include ‘dedicated customer units’ (Birkinshaw et al. 2004, p.122). These units are consisted of employees who act under ‘the guidelines of a global manager ‘(Birkinshaw et al. 2004, p.122). The development of these units in the automotive industry is a common phenomenon; reference should be made, as an example, to the cases of ‘Ford and Volkswagen’ (Birkinshaw et al. 2004, p.122). Sales teams around the world tend to be loyal to the above firms, contributing in the growth of these organizations in the international market ‘(Birkinshaw et al. 2004); c) economic analysis should be another part of the particular matrix; this part would help customers and suppliers to understand the balance between price/ cost of each vehicle. Such analysis, when included in a supply/ demand matrix, helps to increase ‘the economic power of customers/ suppliers’ (Evangelista et al. 2011, p.246). The term economic power, as used above, refers to the provision to the customer of analytical information on a product’s pricing; having such information customers have the power to choose the product the price of which is fair, taking into consideration the balance between product and price. Suppliers also are given the power to choose those organizations that provide a fair compensation on the products ordered; again, the fairness of the compensation is decided by referring to the balance between the selling price and the cost of each product; d) the next part of the matrix would refer to green technology products, as available in the industry’s firms. This part of the matrix would refer to all aspects of green technology, including research and testing, so that the rules of sustainability are followed. In this part of the matrix, reference should be also made to energy use, in regard to both the producer and the customer. The levels of energy required for covering the industry’s needs could be effectively controlled using the framework of UNIDO (2006) as presented below. Graph 4 – Control on energy usage (source: UNIDO 2006, p.6) The sector matrix of the automotive industry could be described through Table 3, below. Drivers Producer Customer Dedicated customer units Only in regard to certain firms Customers are influenced by such units Production Foreign manufacturing has been increased Prefer vehicles produced in specific countries, such as German and Japan Green technology Not available by all firms Preferred but not necessarily Economic analysis Prices are not always analytically described Customers prefer price analysis in regard to the industry’s products Table 3 – Sector Matrix of the supply/ demand chain in the automotive industry 4. Conclusion The establishment of effective supply/ demand chain in a particular industry is influenced by a series of factors. Organizing the supply/ demand chain carefully is a key requirement for a firm to succeed in the global market; the same assumption could be developed in regard to the automotive industry. As noted above, the specific industry shows indications of stable growth, despite its recent downturns. The development of the sector matrix framework in regard to the automotive industry revealed that the management of the industry’s supply/ demand chain could be improved, especially in regard to the areas of the control of production and the delivery on time. In this way, two of the industry’s key problems, as related to its supply/demand chain, i.e. the failures in terms of quality and the delays in the delivery of products, could be effectively controlled, allowing the industry’s long term growth. On the other hand, the elements of the sector matrix framework are not standardized. Different parts of the automotive industry would be used for improving the performance of the industry’s supply/ demand chain. Employing well known theoretical frameworks, such as the Porter’s Value Chain analysis and Gereffi’s Product/ Commodity Chain, would help to ensure the effectiveness of the relevant matrix in regard to the objectives set, i.e. the standardization of the performance of automotive industry’s supply/ demand chain. References Bachelor of International Management, 2013. Porter’s Value Chain Analysis framework. Available at http://bachelorinternationalmanagement.eu/value-chain-analysis/ Birkinshaw, J., Ghoshal, S., Markides, C., Stopford, J. and Yip, G., 2004. The Future of the Multinational Company. Hoboken: John Wiley & Sons. Cohen, S., 2012. Economic Models for Policy Making: Principles and Designs Revisited. London: Routledge. Evangelista, P., McKinnon, A. and Sweeney, E., 2011. Supply Chain Innovation for Competing in Highly Dynamic Markets: Challenges and Solutions. London: Idea Group Inc (IGI). Gereffi, G., 1999. “A Commodity Chains Framework for Analyzing Global Industries. Duke University. Available at http://eco.ieu.edu.tr/wp-content/Gereffi_CommodityChains99.pdf Haslam, C., Neale, A. and Johal, S., 2000. Economics in Busnss Context. 3rd ed. Belmont: Cengage Learning. International Labor Office (ILO), 2010. Automotive Industry: Trends and reflections. Available at http://www.ilo.org/wcmsp5/groups/public/---ed_dialogue/---sector/documents/publication/wcms_161519.pdf Kacher, G., 2012. Ten Trends That Are Steering The Auto Industry's Future. June 2012. Automotive. Available at http://www.automobilemag.com/features/news/1206_ten_trends_that_are_steering_the_auto_industrys_future/viewall.html KPMG, 2008. Skill Gaps in Indian Automotive Service Sector. Available at http://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/Documents/Skill%20Gaps%20In%20Indian%20Automotive%20Service%20Sector.pdf Luthra, S., Kumar, V., Kumar, S. and Haleems, A., 2011. Barriers to implement green supply chain management in automobile industry using interpretive structural modeling technique-An Indian perspective.” Journal of Industrial Engineering and Management, 4(2): 231-257. Available at http://upcommons.upc.edu/revistes/bitstream/2099/10625/1/120.pdf Overbeck, S., 2009. Supply Chain Management - a Critical Analysis. Norderstedt: GRIN Verlag. United Nations Industrial Development Organizations (UNIDO), 2006. A model approach for analyzing trends in energy supply and demand at country level: case study of industrial development in China.” UNIDO, Research and Statistics Branch, Staff Working Paper 2/2006. Available at http://www.unido.org/fileadmin/user_media/Publications/Research_and_statistics/Branch_publications/Research_and_Policy/Files/Working_Papers/2006/WP022006%20-%20A%20model%20approach%20for%20analyzing%20trends.pdf Vanek, F., 2002. “THE SECTOR–STREAM MATRIX: INTRODUCING A NEW FRAMEWORK FOR THE ANALYSIS OF ENVIRONMENTAL PERFORMANCE.” Sustainable Development, 10: 12-24. Available at http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.199.8325&rep=rep1&type=pdf Wright, R., 2013. “US auto industry shrugs off uncertainty.” Financial Times. Available at http://www.ft.com/cms/s/0/d70c59e6-55b1-11e2-bdd2-00144feab49a.html#axzz2NFjit6Xm Read More