International Logistics Management at General Motors - Case Study Example

Introduction Automobile industry is one of the most critical industries in any economy due to its sheer size and overall influence over the economy. (Pollard & Hotho,2006). Automobile Industry in current economic scenario is really in hot waters given the fact that due to financial meltdown, the overall demand for the new vehicles is drastically decreasing. The leading car manufacturers are facing difficulties in managing their businesses in an environment that is critically more volatile and uncertain in nature. It is argued that due to current financial crisis, the automobile industry of Europe as well as Asia was badly hit however, American companies were the probably felt the maximum impact of the crisis. The current trends indicate that the large car manufacturers are now engaging into creative marketing in order to stimulate the demand and as such firms like Toyota are big discounts so as to attract back the customers. This effort may be seen as an step in the right direction for the overall survival of the industry and also indicate the need for employing more creative strategic management practices to successfully meet the external as well as internal challenges. General Motors was one of the big three in the industry however due to current financial crisis it has to look for the help from the government to save its sinking ship. The failure of General Motors also reflects as to how external environment can relatively affect the survival of even a large and well established organization.(Vlasic,2008). This report will present a strategic analysis of the General Motors and will attempt to analyze different strategic frameworks such as PESTLE, SWOT; Ansoff Matrix to further explore the strategic issues that General Motors faced. External Analysis It is relatively impossible for the organizations to influence their external environment as the external environment often reflects trends that organizations have to follow. This also because of the fact that the external environment has significant influence over the different business outcomes and as such the overall strategies within organizations are often formulated after taking into consideration the relative external environment within which organization operates. This section will present an external analysis of General Motors by undertaking three broader strategic management tools such as PESTLE, Porter’s Five Forces and market segmentation. PESTLE ANALYSIS Pestle analysis is important in the sense that it provides a comprehensive outlook of the external environment of the organization and how it can be assessed so as to understand the different risk factors. Further, it also allows organizations to spot different opportunities that can be converted into successful ventures given the fact that organization accurately forecast and assess the different external factors.(Colley, et.al.2001). This analysis indicates that the economic factors are relatively stronger than other factors in affecting the industry dynamics. The current financial meltdown has taken its toll on major automobile manufacturers and as such the overall survival of major players in the market is threatened. 1 Porter’s Five Forces Analysis Porter’s five forces analysis is another important tool that is used to assess the impact of different stakeholders on the firm rivalry. This framework is therefore essential for understanding and exploiting the degree of rivalry between the firms in same industry.( Markintell,2008). This analysis indicates that the overall rivalry between the firms is high with strong entry barriers into the industry. Technological sophistication as well as high start up cost restricts new and smaller players to enter the market. Thus the industry is mostly dominated by the few players with strong regional concentration. Market Segmentation Typically this market is divided into two groups’ i.e. high income and medium income group level consumers. Accordingly, the development of the products is also based on this and as such almost every manufacturer develops the new models based on this principle.(Hasan & Craft,2003) For example, the overall range of the products/models offered by GM will indicate that the it offers various classes of the products including Chevrolet, Buick, Pontiac, GMC et are the brands that suit customers according to their income level. The Chevrolet brand is typically targeted at the low income group working class individuals who commute to their work whereas other more luxurious brands are offered according to the relative prestige and income level of the buyers. Internal Analysis Internal analysis of GM will allow assessing its different investment potential, its ability to assess its overall competitive position as well as to identify the core competencies and strengths besides identifying the weaknesses. The overall purpose will be to provide a comprehensive review of the core competencies of the firm, its relative strategic position in the market. The internal analysis indicate that the innovation was the key to success however, due to recent economic downturn, the overall financial performance of GM declined and it has to file for the voluntary bankruptcy. What is also significant to note that the supply chain of the GM was well diversified with strong emphasis on achieving and delivering quality products to the customers. SWOT Analysis SWOT analysis is one of the critical strategic frameworks that can be used to evaluate the relative strengths and weaknesses of the firms besides understanding and analyzing the opportunities and threats.(Giles,1989). The SWOT Analysis for GM: Strengths 1. Large market share 2. Global presence 3. Diversified network of dealers. 4. Long experience of the market Weaknesses 1. Slow in adaptation of alternative energy vehicles 2. Relied mostly on bank financing to lure consumers to buy. 3. Did not utilized its own brands to capture and retain the European markets. 4. Organizational structure was focused on vertical integration which basically restricted the flow of communication between the higher management as well as functional level employees. Opportunities 1. Opportunity to diversify in new markets. 2. Alternative energy vehicle development 3. Development of new and unique models and styles of cars to suit different markets 4. Lower interest rates to stimulate consume spending on luxury cars. Threats 1. Greater volatility in fuel prices. 2. Imprudent banking practices that would lead to the credit crunch for consumers. 3. Greater volatility in raw materials especially in prices of Steel. 4. Development of strong competition from Asian manufacturers. Key Issues 1. GM was too slow to adapt new and alternative technologies that were going to shape the future of automobile industry. 2. Heavy reliance on financing as the only source to fund the purchase of vehicles resulted into the downfall. 3. GM failed to diversify into Asian markets. 4. The range of fuel efficient cars were limited therefore consumers preferred to use smaller cars in order to meet higher fuel prices. 5. GM could not leverage its global presence to take advantage of its diversification. Ansoff’s Matrix Products Markets Market Penetration Product Development Diversification Market Development GM’s Strategy Market Penetration GM’s existing strategy was that of the market penetration wherein it focused too much on the US market without significantly developing new markets for its products. Future Strategy Parameter Market Development Suitability Given the overall saturation of the main market, market development would have been most suitable strategy to adapt. Feasibility Due to global presence of GM’s suppliers’ it would have been more feasible for the firm to develop markets like India etc Acceptability GM’s had global brand recognition therefore its products would have been readily accepted in the new markets. The strategy of diversification as well as product development may not be suitable due to the fact that existing markets were already served by the competitors and GM was relatively slow in responding to the challenges and thus market was already captured. Thus both of these strategies may not have been suitable. Internal and External Stakeholder Analysis Both the internal as well as external stakeholders will be affected in following manner: Employees There will be retrenchment of employees as the facilities either will be sold out to new management or closed down. However, if GM does not withdraw from Europe, its employees may even lose their jobs. Customers The decision to withdrawal may affect the customers because they will be deprived of high quality automobiles produced by GM. Subsequently, if the operations are wound up, customers willing to buy GM vehicles may have to bear the extra cost which may reduce the overall consumer welfare. Suppliers Suppliers will be another important stakeholders group that will be affected by the decision as they will be losing the potential business whereas at the same time they will have to look for new customers and start over again to create new market space for their products. External Stakeholders These will include shareholders as well as other external groups that may be affected by this decision. However, it is also critical to note that relative influence of the external stakeholders is important to make a definite comment. Government German government will be get affected because the proposed actions by the GM can create significant employment issues which may further result into the socio-political complications. Community Community may be another important stakeholder that may be get affected by the withdrawal since GM was involved in many programs which actively allowed the community to take benefit out of its activities. Implementation Issues Europe is a relatively large market for GM and it can provide significantly large source of revenue for the firm. However, Europe is also diversified in nature and GM has to manage a diversified portfolio of products to offer to a market that is largely diversified as against US where GM can operate with few brands. The fact that it has to deal with different brands in each country therefore may create significant cost issues and restrict the firm to consolidate its position in the region as one of the dominant players in the market. It may be because of this reason that the GM has decided to withdraw from the European market. What is also significant to note that Asian car manufacturers as well as the regional manufacturers of cars have also made significant inroads into the market which further squeezed the space for the firm. This high degree of rivalry therefore may be indicating that the GM was never able to make a successful entry into the market and as such its decision to leave the market may be justified. What is also however, significant to note that Europe is large market and GM has strong presence in the region? Secondly there are countries that are less affected by the current economic meltdown therefore Europe still offers a ray of hope to GM for new market development into EU region. There is also an opportunity of developing new products and brands in collaboration with the existing players that would have given more space to GM in the market which was largely dominated by the local players. Reflective Report During the group activity, there were many occasions when I have to use my managerial and leadership skills to sort out many issues. As a group leader, my major task was to first to ensure that as a team we must develop trust and mutual respect for each other. Once the overall formation of team completed, we moved on to decide what the expected outcomes of this activity are and how we must set up our mission and vision for our team. My role as a leader was to provide the vision to the team as to what are its strategic objectives. What is also significant to understand that conflict resolution is one of the critical aspects that I have to deal with. At the early stage of team formation, it was really difficult to set up the roles of each member and individual roles of each member. As a leader, I was therefore involved in the setting up the direction for the team also. Apart from that my role for conflict resolution was effective too therefore I had to involve myself into the conflict resolution at almost every stage. My overall leadership style was therefore based on the servant leadership wherein my role was based providing and assisting my team members to provide them direction and getting things done through an effective and coordinated effort. As a servant leader my role was therefore of a facilitator also as actively involved myself into the overall affairs of the team management and facilitated the achievement of our broader goals and objectives through a coordinated team effort. APPENDIX -1 PESTLE ANALYSIS Political Factors General Motors is headquartered in US and as such the overall political environment is conducive to the businesses. US is one of the largest democracies of the world with strong ideology of supporting the free trade and liberalization. The recent efforts of the US government to inject funds into the failing institutions is a proof of how State is corroborating with the economy as well as the institutions to engage into free trade. What is also significant to note that US is probably the only country in the world whose political structure is designed in such a manner that it support the capitalism and various institutions to engage into any business practices. As such this political environment is therefore most conducive for the conducting business Economic Factors The current state of the world economy is not really favorable for the automobile industry as well as other businesses. The failure of GM and Ford is a clear indication of how the industry can get affected by the adverse economic factors such as the current one. The overall decline in the consumer demand has been largely seen as a result of the current credit crunch which basically has shrunk the extension of consumer credit to buy things like cars. The year 2007 onwards has not been good for the economy of the world as well as the economy of the US as US is now largely perceived as going through strong recession with very slow recovery.(Mandel,2008). Though it is now estimated that the US economy is recovering however, the overall pace of economic uplift is slow and as such there may still be serious challenges for the organizations to meet their profitability objectives. This situation therefore may require that the General Motors may be relatively on the back foot owing to the overall decline in the economic activity and the current economic environment may be relatively a tougher challenge to meet and ensure the survival. Social Factors American society is based on the consumption and as such consumers tend to spend relatively large as compared to people from other society. This factor is also critical due to the fact that consumer credit is cheaply available which makes it relatively easier for people to buy stuff like cars. There are also increasing concerns for the issues like sustainable development, environmental protection which is making consumers more aware on the macro level and as such there is greater emphasis on the development of technologies which can sustain the environment of the earth. Such factors are now relatively becoming part of American society and as such consumers are relatively becoming more ethical in nature Technological Factors There is an increasing focus on the development of technologies that can utilize alternative fuels. As such the technological factors that will force firms like GM to innovate will include development of cars that will use ethanol as well as Hydrogen to utilize as fuel. Legal Factors Overall the legal environment is stable as the US is one of the most de-regulated economies of the world. This also means that the overall legal environment is relatively conducive for conducting the business whereas there is also an strong emphasis on the regulations pertaining to corporate governance etc which firms generally have to follow in order to ensure that the organizations follow well defined code of governance and do not engage into behaviors which may put the interest of the shareholders at stake. Environmental factors As outlined above that the future will be dominated by the technologies that are going to be environment friendly. This therefore requires that the environmental factors must be considered as an strategic challenge by GM as its future innovation efforts will be based on how well it manages its different environmental challenges. APPENDIX 2 Porter’s Five Forces Rivalry between existing competitors Considering the amount of capital requires setting up an automobile firm, it is obvious that the overall rivalry between the firms is relatively large. The automobile industry in US is dominated by GM, Ford and Toyota with other smaller players also serving the different niches of the market. There are different layers or segments of the market i.e. fuel efficient car market, luxury cars etc therefore the overall rivalry between the firms is based on the relative degree of rivalry between each niche. It is also critical to understand that the firms like Toyota and Ford, before 2007, were offering significantly more challenge to the existing firms in the industry because of their traditional superiority in technology as well as brand image. However, with the current financial meltdown, the overall profitability has declined substantially whereas most of the firms are finding it difficult to survive. In such scenario, the profitability has declined and the rivalry between the firms has declined due to the fact that the firms are busy in for saving their survival and as such the overall rivalry in strict sense has declined. It is therefore easy to conclude that despite having strong rivalry, the current trends indicate that the overall rivalry has declined. Bargaining Power of Buyers As such there is no or very little bargaining power available to the buyers due to sheer size of the firms working in the industry. However, due to cut throat competition, the switching cost is relatively not so high especially in case of first time buyers therefore buyers have a range of choices to make while making a buying decision. It is also critical to note that due to recent economic meltdown firms are reducing their prices in order to stimulate the demand however, this reduction in prices may not be attributed to the bargaining power of buyers but rather it is due to external forces which are out of the control of each firm in the industry. Bargaining Power of Suppliers Earliest trends indicated that the automobile industry was vertically integrated due to which suppliers have relatively low power in this industry. However, with the changes in the management techniques such as JIT etc, the overall dimensions changed and the relative power of the suppliers further reduced as suppliers attempted to locate themselves closer to the manufacturing facilities of the automobile manufacturers Threats of Substitutes The overall threats of substitutes are relatively larger because of the range of available car manufacturers in the industry. Though the cost of entry into this industry is relatively high however, once in, each manufacturer attempt to manufacture each type of vehicle thus the substitutes are easy to market and manufacture. For example, low fuel efficient small cars are made almost by every manufacturer whereas the luxury cars are also made by the same firms. However, it is critical to understand that some of the luxury brands such as Mercedes and BMW are often hard to substitute because consumer purchase them out of their need to have better social recognition. Thus for smaller cars, the threat of substitutes is relatively high whereas in luxury cars segment, this threat gradually subside. Entry Barriers Overall entry barriers into this industry are relatively high due to high cost of capital involved in starting the business. Further, there are also strong technological barriers which restrict the new and smaller players to enter the market due to lack of technological sophistication. It is because of this reason that the industry is mostly dominated by few large firms controlling most of the market share across the globe. What is also significant to note that the high cost of entry coupled with natural as well as artificial barriers give market lead to many firms in different markets therefore there are regional concentration of the market players. The above discussion indicates that there is fierce rivalry between the firms because of natural as well as artificially created entry barriers. The overall bargaining power of buyers as well as suppliers is low and industry is mainly driven by few players that dominate the market. However, recent economic conditions have lessened the power of the many firms and as such there is gradual decline in the overall market strength and share of each player in the market. APPENDIX 3 INTERNAL ANALYSIS Strategic Capabilities GM is the largest automobile maker in the world with over seventy years of success as it has successfully expanded into new markets. Until 2008, it was one of strongest players in the market however; its recent actions may dilute its overall strategic position in the market. It has strong presence in almost 35 countries and many brands that are widely recognized as industry leading brands. It is also critical to note that the overall market share of GM is increasing in China indicating the strong brand image of the firm as well as its ability to successfully venture itself into different new markets. This also signifies that the firm has strong core competencies and it has been able to successfully use its business model in different markets.(Rick,2003). Its major competitors include Chrysler, Ford, Toyota as well as Honda Motors however, despite having such strong competition, its relative comparative strength lies in its ability to produce products according to the market requirements duly supported by its strong culture and values that allow it to sustain its core competencies.(Davidson,1991). Value Chain Analysis The in-bound logistics in the company are supported by following a global strategy of purchasing as GM has diversified itself into different countries. GM has a dedicated global purchasing and supply chain department which is responsible for the procurement of parts for the cars, different parts for the plants as well as the ensuring the flow of other essential raw materials. It is also critical to note that the overall market territory for GM is divided into four global regions which basically allow its suppliers to easily supply the raw materials at an affordable cost.(Williams & Mentzer,1981) The outbound logistics were supported by a diversified base of dealers across the different regions of the world that serve as the point of sales for the firm. It is also critical to note that the GM has a strong program for the development of minority dealer which basically allows to achieve diversity in its listed dealers as well as to ensure that GM serves as a responsible player in the market. GM also supports its dealers and suppliers by efficiently utilizing the internet technology as the website of GM provides very essential and critical information to its dealers as to how to deal with different issues besides marketing different promotional campaigns to them. ( Zonneveld ,2007) The marketing and sales were also closely collaborated with the dealers and as such the overall focus is on utilizing different media to market the product. It is also critical to note that most of the marketing and sales efforts are driven through the dealers however; the overall base of GM’s dealers is well diversified. Core Competencies Innovation is probably the key to the overall core competencies of the GM as it has been able to successfully innovate not only its core products and services but also its processes. The use of internet and other technology has provided a strong edge to the firm to take lead over its competitors. Secondly, its management practices were considered as its one of the core competencies also. Financial Analysis Last three year’s performance has not been satisfactory for the GM as from 2006 to 2008; it recorded a loss of $30.8 Billion in 2008. The revenue continued to decline whereas the stock performance is not satisfactory too after the voluntary filing of the liquidation by GM. This can be attributed to the overall economic conditions that are causing such low financial performance on the part of GM. GM has a total debt of $54 Billion whereas its total cash reserves are only $11.58 Billion which may not be sufficient enough to pay off its liabilities.2 References: 1. Davidson, (1991) innovation and Corporate Mergers. Journal of Business Strategy. 12 (1) 42 – 44 2. Hassan, S & Craft, S (2003) Understanding the new bases for global market segmentation. Journal of Consumer Marketing. 20 (5) 446 - 462 3. Jiles, W (1989) Making SWOT Analysis Work. Marketing Intelligence & Planning. 7 (5) 5-7 4. Mandel, M (2008) The U.S. Economic Crisis: Three Growth Scenarios Business Week, Available: http://www.businessweek.com/bwdaily/dnflash/content/nov2008/db2008112_957646.htm Last accessed 30th December, 2009 5. Pollard, D & Hotho, S (2006) Crises, scenarios and the strategic management process. Management Decision. 44 (6) 721 – 736 6. Rick, A (2003) GM and the future of new product development: Creativity and technology: a marriage made in heaven?. Strategic Direction. 19 (1) 17 – 20 7. Vlasic, B (2008) G.M., Once a Powerhouse, Pleads for Bailout New York Times, Available: http://www.nytimes.com/2008/11/12/business/12auto.html Last accessed 30th December, 2009 8. Williams, R & Mentzer, J (1981) International Logistics Management at General Motors: Philosophy and Practice. International Journal of Physical Distribution & Logistics Management. 11 (5) 12 – 20 9. Zonneveld, J (2007) GM dealer training goes global (General Motors). uman Resource Management International Digest . 15 (4) 5-10 Read More