Competitive Strategies and Government Policies - Essay Example

Though recent developments are forcing automobile manufactures to either innovate or lose, most have responded with the willingness to retain their market shares in the future as well. Newcomers, Mergers and Globalization A horizontal merger between Porsche and Volkswagen (VW) took place on 5 July 2012. VW bought half of Porsche’s operations for €4.4 billion and “one VW ordinary share for the 50.1pc of Porsche’s car-making activities that it does not already own” (Osborne, 2012). As a result of the merger, Porsche’s 911 sports car became a part of VW luxury car production of marques Bentley and Bugatti, budget brand Skoda, as well as of the MAN and Scania truckmakers (Osboren, 2012).

This merger was horizontal, as both of these companies have a share in the total global car sales. The merger was not declared anti – competitive because of companies’ market shares. According to Farrell and Shapiro (1990), horizontal mergers are of great concern to authorities as some through increased market share engage in uncompetitive behavior, such as higher prices (p.107). Porsche cars comprised only 0.2 percent of the market shares in terms of sales in the United States in December 2012 (The Wall Street Journal, 2013).

VW comprised 3.2 percent (The Wall Street Journal, 2013). . Besides mergers, new companies have been entering the automobile industry. With recent changes in technology and environmental awareness, new companies striving for a larger market share belong to the electrical car section of the automobile industry. Such is Coda Motor Company (2013). There are additional electrical car producers, such as Tesla Motors (Tesla Motors, 2013), Wheego Electric Cars (2013), Venturi (2013) and Saba Motors (2009).

However, all of these companies, regardless of how innovative they are, are affected by globalization. According to the trade models, countries with lower labor costs can produce the same goods at a lower cost than those with higher, thus shifting low skilled production activities to the former (Nunnenkamp & Spatz, 2002, p.5). Though the automobile industries are highly capital and human capital intensive, production started shifting to cheaper countries with a rise in foreign direct investment (Nunnenkamp & Spatz, 2002, p.9). As a result, less than 70 percent of production takes place nowadays in developed countries, including the traditional producers such as Japan, the United States and Germany (Nunnenkamp & Spatz, 2002, p.5). The least intensive types of production take place in developing countries.

For example, German companies produce auto parts domestically, but engines are produced abroad (Nunnenkamp & Spatz, 2002, p.5). Thus, there are new suppliers of automobiles. Due to the cheaper labor, the European periphery (Greece, Spain, Portugal and Ireland), Central and Eastern Europe, China and several other industrializing Asian countries, and Mexico among other countries, have been producing automobile parts since the 1980’s (Nunnenkamp & Spatz, 2002, p.6, 41). By 1998, Latin American countries’ market share amounted to