International Strategy and Pertaining Changes in the Mexican and Canadian Automobile Industry - Case Study Example

International strategic management Case Study analysis International strategy and pertaining changes in the Mexican and Canadian automobile industry In a business concern, strategy formulation and implementation is essential as it helps in defining direction and action plans as well as prioritize business activities. In this context, strategies can be categorized as functional strategy, business strategy, corporate strategy and international/global strategy. The paper is focused on international strategy with respect to the sea change that global automobile industry, especially that in Mexico and Canada is undergoing at present. In the case, it was gathered that in past three decades Canada’s share in the United States’ automobile production has declined to 14% while that of Mexico has increased from meager 3 percent to 20 percent. Large numbers of multinational automobile manufacturers are either shifting their base from Canada to Mexico or are limiting their operations in Canada and expanding the same in Mexico (Althaus “Mexico Sets Auto Production Record, Aims for More”). Mexico has gained significant attention of automotive producers, as a result of several factors that deliver geographical and other competitive advantages to manufacturers. These advantages include extremely low wage rate, free trade agreements with approximately 45 countries across the globe, well-developed transport system with year-round ice free coastal ports and high level of financial incentives from Mexican government. Owing to these features, global automakers announced investment of $7 billion in Mexico as opposed to $750 million in Canada. Mexico’s stable and lucrative business environment has caused most automakers to adopt global strategy for business expansion (Keenan “Mexico races ahead in auto industry as Canada stalls”). Contextually, it is imperative to comprehend the distinction between international and global strategies even though they are frequently used interchangeably. These differentiating factors are degree of central involvement and coordination in strategic activities, degree of standardization in products and responsiveness towards local business environment and strategic integration and competitive steps. Since internationalization in Mexico is mainly about achieving competitiveness in production and operations, almost all companies adopt global strategy (Twarowska and Kakol 1005-1011). Under the purview of global strategy, most automakers ensure and exercise central control over production in Mexico and as automotive industry is about ensuring standardization in products, global strategy is most effective herein. Unlike international strategy, global strategy is mainly about maintaining integrated approach towards competition instead of mitigating the same on standalone basis. For instance, economies of scale strongly favor Mexico resulting to development of increasing number of suppliers in the country. In this regard, Audi has established its plant close to that of Volkswagen so that they have constant supply of auto parts without suppliers charging extra, as they do not need to travel extra for delivering parts to the different company plants (Twarowska and Kakol 1005-1011). Studies suggest that the surge of changes has taken place since the recession which significantly eroded Canada’s manufacturing sector. Canada had advantages in terms of high skilled labors and government grants, but Mexico is no less in these aspects. In Mexico, labor charges are low but that does not mean that the labor quality is poor. Instead, Mexico delivers high quality labor and significant financial incentives along with duty free movement of final goods in several countries. There are mainly two entry modes that are adopted by firms to enter foreign markets, namely, non-equity mode and equity mode. Among various methods, companies have mainly adopted direct investment in Mexico for enjoying various business related benefits accessible in the country (Twarowska and Kakol 1005-1011). Mexico is enjoying greater investment inflow than that in Canada, mainly because of cost advantage and location advantage. The cost of living and inflation in Mexico is extremely low compared to that of Canada and the US. As a result, labor changes and other production charges are low as well (“Cost of Living Comparison between Mexico and United States”; “Cost of Living Comparison between Mexico and Canada”). Additionally, duty free shipping in major countries further contributes towards increased profit margin of automobile manufacturers. Interestingly, Mexican Government has comparatively flexible policies regarding direct and indirect foreign investment making it easier for firms to enter the market and undertake production and export. Canada is no more the first choice for the manufacturers because since the recession, Canada remained unsuccessful in delivering cost advantages due to soaring prices and limited number of agreements with the European Union, South Korea and the US. Overall, it can be suggested that favorable internal and external business environments of Mexico has made it a preferred option for automotive manufacturers (Boyer and Lewis 9-20). Organizational responsibilities Globalization and economic liberalization has resulted in diminishing of trade and resource barriers and ever increase in growth of multinational corporations. Besides growth of global corporation, another trend has been observed is maximum utilization of untapped potential in any form in any country. Consequently, countries such as Mexico and Latin America have become hub for production activities (Keenan “Mexico races ahead in auto industry as Canada stalls”). Globalization has favorable as well as unfavorable impact on different economies. For instance, high-wage nations are losing employment to low-wage counterparts while countries with high environmental and ethical business standards are losing business to underdeveloped nation with relaxed policies. In this regard, organizations have three essential responsibilities: responsibility towards stakeholders such as employees, government bodies and shareholders, social and ethical responsibility and environmental responsibility (Carroll 39-48). Responsibilities towards stakeholders: Stakeholders primarily comprises employees, investors, creditors, government bodies and potential investors. An organization has financial and non-financial responsibilities towards these parties. Financial stability by means of revenue and profit growth and dividend distribution is an important responsibility of an organization. Non-financial responsibilities comprise development of social capital and contribution towards societal development. The responsibilities of an organization towards government include timely payment of tax and compliance of various business regulations. In International business situation as given in the case, the stakeholder oriented responsibilities of the companies will be contribution towards economic development of Mexico and Canada, employment creation, fair and equal wage distribution and abiding of global and local business code of conduct. These responsibilities are solely pursued by the organizations and its strategic partners (Carroll 39-48). Social and ethical responsibilities: Ethical and social aspects of business responsibilities are essentially non-financial but affects survival of a business strongly. These responsibilities include ethical sourcing, abolition of forced labor and child labor, provision for healthy work environment and basic amenities, producing and selling high quality products to consumers without misrepresentation, provision for education for employees’ children, medical facilities and others. These responsibilities depend on the organizations, their suppliers and on ultimate consumers. The corporations are responsible for consistent monitoring of activities in various geographically diverse plants and supervising activities of their suppliers. The suppliers are responsible for ethical sourcing which does not involve illegal and shadow practices. Consumers are ultimate buyers and are responsible for verifying originating source, quality and standards (Carroll 39-48). Environmental responsibilities: Manufacturing activities has significant negative impact on the environment. In countries such as Mexico, high degree of production can have disastrous impact on the country’s environment. Most companies operating and engaged in manufacturing activities in the nation are reputed Multinational Corporations, and responsibility towards the national environment of Mexico can be considered under the purview of their corporate social responsibility. The responsibilities include adopting measures for minimizing carbon emission, purification of gases and other gaseous products before they are exposed to natural environment, adoption of sustainable green technologies and purification of water that has been used for industrial purpose. In addition to that, these automobile manufacturers are also responsible for developing alternative energy sources as fuel for the vehicles, so that environmental footprint can be minimized (Carroll 39-48). Strategic similarities or dissimilarities for profit and non-profit corporations Porter’s generic strategies For-profit companies: Porter’s generic strategies can be broadly classified as differentiation, cost leadership and focus strategies and these strategies are implemented by business organizations as per their overall business situation and scope of profitability. When an organization is assured that its products and services cannot be matched by its competitors then it can adopt differentiation strategy. Cost leadership strategy is most effective when companies can maximize profit only by means of reduction in operating costs. Niche or focus strategy is implemented by a for profit organization when it is interested in limiting its business to a specific segment of a large market (Porter 35-89; Rojas 97-104). Non-profit corporations: Non-profit corporations are created in order to carry out various altruistic activities and promoting development activities without making profit. Non-profit organizations can be governmental as well as non-governmental corporations. These organizations mainly adopt cost leadership strategies so that maximum targeted tasks are completed by incurring minimum cost as these firms do not make profit and they need to pay for all the cost from its own reserves and funds. Most private non-profit organizations depend on fundraising for capital to run the business, while government non-profit organizations are run by the revenue generated from taxpayers. The private corporations can implement differentiation strategy in fundraising process for attracting greater number of investors therein (Rojas 97-104). Overall, the main difference between implementation of generic strategies at for-profit organization and non-profit organization is that non-profit organization mainly implements these strategies for cost efficiency and creation of social equity while, for-profit organizations are mainly concerned with profit maximization. Mintzberg’s business strategies Mintzberg has coin two business strategies which can be implemented at an organization are deliberate strategies and emergent strategies. Deliberate strategies are well-defined in nature with precise description of every role and responsibility. Emergent strategies, on the other hand, are actions that have been consistent for specific time period but have never been defined formally (Mintzberg and Waters 257-272). For-profit organizations: In for-profit organizations, both deliberate and emergent strategies are implemented, but at different organizational levels. For instance, deliberate strategies are implemented at managerial levels so that every plan is executed in an organized manner and organizational objectives are achieved in a timely manner. Emergent strategies are implemented mostly at operational level where employees are well aware of their routine jobs and targets. Both deliberate and emergent strategies are implemented at these organizations with primary motive of profit maximization and shareholder’s wealth maximization (Rojas 97-104). Non-profit organizations: In non-profit organizations, well-defined layout of plan is developed and tasks are achieved accordingly. Such organizations are dedicated towards maximization of social equity and therefore, mainly adopt deliberate strategy. Non-profit organizations, however, are presently facing strong pressure from various stakeholders for broadening their accountability and as a result, have been observed to adopt a blended form of deliberate and emergent strategies (Rojas 97-104; Morrison and Salipante 195-217). Overall, it was observed that Mintzberg’s business strategies are implemented in an almost similar manner at for-profit and non-profit organizations. However, in non-profit organization both strategies are implemented in a blended form as per stakeholders’ demands. Works Cited Althaus, Dudley. “Mexico Sets Auto Production Record, Aims for More.” WSJ. WSJ, 2015. Web. 13 April 2015. Boyer, Kenneth K., and Marianne W. Lewis. "Competitive priorities: investigating the need for trade‐offs in operations strategy." Production and operations management 11.1 (2002): 9-20. Print. Carroll, Archie B. "The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders." Business horizons 34.4 (1991): 39-48. Print. “Cost of Living Comparison between Mexico and Canada.” Numbeo. Numbeo, 2015. Web. 13 April 2015 “Cost of Living Comparison between Mexico and United States.” Numbeo. Numbeo, 2015. Web. 13 April 2015. Keenan, Greg. “Mexico races ahead in auto industry as Canada stalls.” The Globe and Mail. The Globe and Mail, 2015. Web. 13 April 2015. Mintzberg, Henry, and James A. Waters. "Of strategies, deliberate and emergent." Strategic management journal 6.3 (1985): 257-272. Print. Morrison, J. B. and Paul Salipante. "Governance for broadened accountability: Blending deliberate and emergent strategizing." Non-profit and Voluntary Sector Quarterly 36.2 (2007): 195-217. Print. Porter, Michael E. Competitive advantage: Creating and sustaining superior performance. Simon and Schuster, 2008. Print. Rojas, Ronald R. "A Review of Models for Measuring Organizational Effectiveness Among For‐Profit and Non-profit Organizations." Non-profit Management and Leadership 11.1 (2000): 97-104. Print. Twarowska, Katarzyna, and Magdalena Kakol. "International Business Strategy: Reasons and Forms of Expansion into Foreign Markets." Active Citizenship by Knowledge Management & Innovation: Proceedings of the Management, Knowledge and Learning International Conference (2013): 1005-1011. Print. Read More