Nanocomposites in the Automotive Industry - Case Study Example

Introduction Automotive industry experiences serious changes on the eve of new technological revolution. While traditional markets are saturated newmarket opportunities open in Asia and a number of developing countries. This essay analyses the strategy of one of the most well-known brands, Mercedes-Benz, in the context of the rise of interest to Asian market. The first part of the essay is devoted to the previous direction of the company. The second part analyses current trends in the automotive industry. Next strategic resources of Mercedes Benz are analysed, and finally, possible future strategy is outlined. Company Direction Mercedes Benz has a very long history of cars manufacturing, being a part of Daimler-Benz company and later belonging to Daimler-Chrysler. Perhaps, Mercedes-Benz is the most well-known automotive brand worldwide. Its rich history and known top-level quality have earned a reputation of luxury cars manufacturer for the company. Mercedes Benz automobiles being prized for prestige and quality often become the choice of the rich and famous. Throughout the history, the goal of Mercedes Benz was providing its customers with more than just cars. Owning a Mercedes Benz was a symbol of belonging to community valuing quality above all. The focus of Mercedes-Benz vehicles is set on high quality and state of the art engineering. Of course it makes them expensive; thus they are made in lower volumes compared to cheaper cars. The company has carefully cultivated an image of superior engineering, quality, and service. Mercedes-Benz is clear leader in the luxury and upper range segment of the market. Recent efforts of the company to move towards lower segments were rather successful: its Smart brand has become a market leader in microcar segment in several European countries. Hence the famous luxury cars manufacturer now tries to make its products popular among low-priced cars to achieve global dominance. The mission statement of Daimler-Chrysler, which Mercedes Benz is currently a part of, indicates efforts towards fulfilling customers' desire for mobile independence (Daimler-Chrysler 2005). Mercedes-Benz is proud of his long 120 years history of car manufacturing, putting its experience and commitment to use in making quality cars. Nevertheless, quality is not the only pillar the company stands upon. The corporate strategy of Mercedes Benz is based on four cornerstones: global presence, strong brands, broad product range, and technology leadership. Invention and innovation put to good use at Mercedes Benz allows a company to set up a high quality standard. Broad product range reflects the company's direction towards dominance rather than being a niche player in luxury cars segment. Its strong brand is often seen as its greatest competitive advantage providing Mercedes Benz cars with a spirit of precision and comfort. Finally, steps taken in the establishment of global presence allow Mercedes Benz to enter new national markets. The great Daimler-Chrysler merger made in 1998 can be seen as an example of establishing global presence of Daimler-Benz. Although the deal was supposed to be a merger of equals, Daimler-Benz quickly took the wheel of the new formed company. "When the dust settled, Daimler was firmly in control of Chrysler, and the shock waves were reverberating on both sides of the Atlantic. An American icon would lose its independence, and a German giant would grow in power and influence." (Stertz and Vlasic, 2000) Another example of expansion is purchasing of Mitsubishi departments serving two purposes: 1) getting closer to a perspective Asian market and 2) using the expertise of Asian car manufacturers in producing small cars. Nevertheless, the sky is not clear for Mercedes Benz. Its recent trends of moving into lower market segments has not gone unnoticed for its luxury cars. "In recent years the brand's reputation once sterling reliability record has been called into question when it was recently ranked rather low in consumer surveys." (Wikipedia 2006) Thus Mercedes-Benz is now performing the transition from specialised luxury cars manufacturer to a global giant. But the question is: will that change be successful Industry Analysis Contemporary trends in automotive industry are influenced by the two main economic factors: shift of growth to new markets (e.g. Asia, Eastern Europe, South Africa, etc.), and cost pressure increasing. The globalisation of trade has opened new markets for automotive companies. The increase of wealth among Asian population along with political stimulation of foreign trade has turned Western giants' eyes to East. At the same time markets with traditionally well-developed automotive industry (e.g. US, UK, Germany, Japan, etc.) have reached stagnancy, which made new markets not the opportunity but the necessity for car manufacturers. Along with ever-increasing cost pressure companies have to seek new sources of revenues in new markets. Analysing competition in the automotive sectors the most significant force of all the five used in Porter analysis is the power of suppliers. Indeed the threat of substitution of automobiles is very low: even if some new solution will be found it will take decades to replace cars. Although the demands of cheaper cars by customers are significant their buyer power is rather low because of their multiplicity. Next, the threat of new players entering the market is moderate, as it is possible that some companies from national markets that were closed previously will enter the world arena, however because of rather high rivalry and competition in the automotive industry the threat of new players cannot be significant. The power of suppliers is strengthened with new technologies in supply chain shifting the production process to suppliers and increasing material costs. Competition in the automotive industry is greatly affected by the technology. Innovation leading to better quality and cheaper production is an essential part of a successful car manufacturer. Currently the analysts indicate that the industry is on the threshold of material revolution, as significant as the invention of assembly line by Henry Ford, and lean production by Toyota. One of the possible material solutions is the use of nanocomposites. "The nanoworld may be small, but it promises to be the largest materials revolution of the next two decades." (Lownsdale, 2004). Engineering innovation will determine the future leaders of automotive industry. Under the stated circumstances of the rapid increase of demand for cheap cars in Asian markets the companies investing aggressively in Eastern markets are expected to be the leaders of tomorrow. The strongest position is taken by giants like General Motors, BMW, Ford, Volkswagen, Toyota, Honda, Nissan, and Daimler Chrysler. That is why the trend of moving Mercedes Benz in lower segments of the market is completely reasonable. On the other side manufacturers of exclusive autos, such as, Lamborghini, Porsche, Bentley are in a weak position. Their role may come to niche players on luxury market segment. Thus the determining factors for future success are the use of technological innovation to cheapen the production process, and expansion strategy into opened markets. Market battles between automotive companies of the future will take place in countries like China and India. Company Resources Although the current performance of Mercedes Car Group leaves much to be desired the company has great potential. Reports of this year indicate higher revenues than in 2004 and yet the division posted an operating loss of 505 million. This is explained with expenses related to realignment of the business model at smart and to workforce reductions in Germany (Daimler-Chrysler, 2005). Thus, while the company's turnover has increased its profit has remained same as before. As it was stated previously one of the main strengths of the company is the Mercedes-Benz brand. It is well known throughout the world as a sign of quality and became one of the symbols of Germany. For instance, Mercedes-Benz is one of the most frequently mentioned cars in popular songs: "For years, Mercedes was a favorite for its effortless blend of style and prestige." (Kiehl, 2004) Constant strive for technological innovation, strong position on the luxury car market, expertise of Mitsubishi departments at manufacturing small cars, and the international presence of the company are also its important strengths. Its weaknesses are relative high car prices, rather low recent financial performance, and customer complaints about the declined quality. Opportunities for Mercedes Benz are as follows: increasing their sales through successful operation on lower market segments, and establishing the firm base on the Eastern national markets. At the same time these opportunities can turn into threats, if the return on investments will be low. There is another threat though: while being distracted with new strategy, Mercedes Benz can lose its advantageous position on the luxury car market segment. Currently, the competitive position of the company remains to be strong. It is supported by the success of the initial investment into Chinese market. "DaimlerChrysler AG received approval of feasibility-plans to produce Mercedes-Benz passenger cars and vans in China DaimlerChrysler is investing EUR 1.2 billion in China for its ongoing and future projects to realize Mercedes-Benz passenger car and van production" (WorldCarFans, 2004). Mercedes Benz has good chances to become on of the key players on new markets. The use German traditions of high quality and state-of-the art engineering will be beneficial for Mercedes Benz on Chinese market; however it also can become an obstacle. Corporate culture has to be changed, as now there is one more critical factor for the company: costs per produced car. Top pricing model which was previously applied by the company is no good on Asian market (Ideas For Marketing, 2002). Successful performance on Eastern market requires taking into account every penny, and under these circumstances a compromise must be achieved between cost and quality. Strategy and Competitive Advantage Choosing between three generic strategic approaches to operation - cost advantage, differentiation, or focusing on niche market - it would be wise to choose differentiation in these new conditions. Cost never was an advantage of Mercedes Benz, and it will be hard to compete with traditionally low-priced cars like Hyundai. Further on, niche market strategy on the Asian market can be compared to suicide as it will be extremely hard to select the right audience and remain the top manufacturer, as almost every major player will be present on the market, and again, Mercedes Benz never was a niche company. Meanwhile, steps towards product differentiation have already been taken (smart brand, expanding into lower market segments). New cars developed sales with lower prices have already proven to be successful. It would be the most reasonable to continue movement in this direction. Nevertheless, costs should be among the main focuses of Mercedes Benz. The best way to cut costs is almost natural for it: making production cheaper through technological advancement. Applying new production schemes and new technologies for production will lead to lower expenditures and eventually higher revenues. Despite the skepticism towards the use of ICT technologies and e-business in automotive industry it still can help Mercedes Benz to streamline the production in two aspects: product development (up and down the supply chain) and relationship management (towards OEM customers). (Berger, 2001) Although the Internet cannot be perceived as the driving force for automotive industry, still the use of e-procurement used by Mercedes Benz in Spanish department has proven to be successful. Core competencies of Mercedes Benz are car model designing and manufacturing. Using their strong brand name, high standard quality and technological innovation the company can regain its former glory as a high-quality car manufacturer and maintain its position on the luxury market. At the same time, through product differentiation, Mercedes Benz is able to achieve significant successes on lower market sectors of European and Asian markets. If acting this way, all the threats will be eliminated and the market position of Mercedes Benz will be strong as never before. References Berger, R. (2001). Automotive System Integrators: Spiders or Flies in the e-Business Web Available from: http://www.osat.umich.edu/Automotive_System_Integrator_and_eBusiness.pdf [Accessed March 30, 2006]. Daimler-Chrysler (2005). Annual Report. Available from: http://www.daimlerchrysler.com/Projects/c2c/channel/documents/829811_DC_GB05_E_gesamt_comp.pdf [Accessed March 30, 2006]. Ideas For Marketing. (2002). Strategy for Pricing A Product Or Service Optimally. Available from: http://www.ideasformarketing.com/pricing.html [Accessed March 30, 2006] Kiehl, S. (2004). "Pop Goes Commercial". Baltimore Sun, August 29. Available from: http://www.agendainc.com/baltimore.html [Accessed March 30, 2006] Lownsdale, G. (2004). Nanocomposites in the Automotive Industry. High Performance Composites, November. Available from: http://www.compositesworld.com/hpc/issues/2004/November/619 [Accessed March 30, 2006]. Stertz, B. and Vlasic, B. (2000). Taken for a Ride: How Daimler-Benz Drove Off With Chrysler. Wiley (William Morrow & Co). Excerpt available from: http://www.businessweek.com/2000/00_23/b3684147.htm [Accessed March 30, 2006]. Wikipedia. (2006). Mercedes-Benz. Available from: http://en.wikipedia.org/wiki/Mercedes_Benz [Accessed March 30, 2006]. WorldCarFans. (2004). DaimlerChrysler AG Receives Approval to Produce Mercedes-Benz Passenger Cars and Vans in China. Published on November 2, 2004. Available from: http://www.worldcarfans.com/news.cfmnewsid=2041102.003&mercedes=1.html/country/gcf [Accessed March 30, 2006]. Read More