Introduction
Automotive industry is rapidly growing due to increasing demand for new car models. Such a situation on the market has brought dramatic shift within the industry with the major multinationals, strategizing their businesses for the purposes of enhancing the market share and their global presence. Concurrently, there exists emerging markets for multinationals within developing countries.
There is clear evidence that manufacturers nowadays try to improve sales rate of their automobiles, augmenting revenues, hence realizing their remarkable profitability (Norcliffe 2006, p. 56). Demand for automobiles has reached a high record within the international markets despite increased competition. This calls for enhancement of production processes through the use of cost effective concepts within supply chain capable of meeting changing market demands.
In the year 2009, automotive industries within the United States encountered one of the most detrimental crises in history. Statistics shows that varying changes on automotive sales have always occurred in the industry at different periods. Multinationals dominating the industry, such as General motors (GM), Ford, and Chrysler (the Detroit), had been gradually experiencing drastic drop in sales and market share until it became evident in late 2008 (Bennett, 2005).
How might the governments in the developing and developed economies seek to impact the automotive industry?
The effect of 2008/2009 recession was felt globally due to globalized financial sector as well as strong international linkages (Van Biesebroeck & Sturgeon 2010). The effects were severe on global value chains leading to reduced demands for automobiles in the United States as well as in Europe. This directly affected developing economies based on various linkages through production steps.
The crisis forced Western governments to seek for solution within the financial sector (Van Biesebroeck & Sturgeon 2010). There were cases of propping up firms from manufacturing sector for the purposes of avoiding large-scale bankruptcies (Van Biesebroeck, & Sturgeon 2010). The program included many automotive firms, which were to be protected from sinking through cash infusions, subsidies as well as cheap credit.
Foreign direct investments within developing countries were first exported back to developed countries (Van Biesebroeck & Sturgeon 2010). However, the situation changed when local markets were also considered. In case such kind of global value chain is taken into consideration, innovation and design functions usually remain within industrial countries and developing world used for production purposes.
Within such scenarios, firms from developing nations can utilize the opportunity for purposes of upgrading their capabilities, while at the same time creating employment opportunities within automotive industry.
Political pressure within automotive industry pushed dealers to establish production close to the end markets. The fact that manufacturers are few, hence processes are globalized, contributes to the development and enhancement of just-in-time production as well as design processes.
Due to the closeness between some developing and developed countries as well as well-arranged strong relationships between them, there can be supply of parts on a just-in-time basis, especially within regional trading blocs (Van Biesebroeck & Sturgeon 2010).
How might international bodies, such as the WTO, directly or indirectly seek to impact the automotive industry?
International bodies assist through provision of legislative trade laws and policies capable of regulating market forces and trends. Concept of free trade plays a major role in developing world trade policies as well as it is considered a part of globalization since it ensures fairness in international trade based on considerable principles of agreements.
The concept entails removal of most trade barriers within international market for the benefit of global and domestic consumers. There is provision on Fair pricing meant for equal distribution and provision of goods and services, hence enabling consumers to gain access to sensitive and vital goods. Free trade agreements are usually signed after long negotiation processes between countries.
Such negotiations lead to the opening of markets which could not be previously accessed by companies from certain countries. Trade agreements and policies bring the possibility of operating within the global markets. This goal is achieved because free trade agreements have the capacity of directly influencing company’s export costs, which eventually determine prices charged within these foreign markets (Carbaugh, 2004).
Policies on Fair trade entail trading goods and services with aim of creating equity and partnership within automotive global market system. Besides designers and producers running business for money, the commitment part of the whole process is not ignored, hence committed to operate under long-term contracts for the future benefit of businesses and entire society.
Those involved in Fair trade dealings are characterized as small cooperatives of workers using environmentally friendly methods for the purposes of sustainability. Standards and conditions within fair trade entail various human aspects within society; hence any form of forced labour is not practiced. In such circumstances, producers are expected to sign up and be accountable for the quality and nature of models supplied to the market.
Basically, fair trade operates on principles of agreement where there is guarantee of minimum price for traded commodities. This is done for the purposes of paying workers in developing countries more than their expected earnings are. International trade is capable of developing country’s economy and normally restricted to the exchange of goods and services.
There are a number of drivers believed to be behind the increasing improvement in international trade and marketing. Increase in customer base and market share presents one of the main potential drivers and helps in eliminating over-reliance on single market. Reduced cost is also considered a key driver of increased international marketing, this makes organizations access cheap resources and labor within developing nations.
Reduced costs enable marketers to dispose their products at lower prices, encouraging those with disposable income from various markets to buy more goods and services. Improvement in communications technology is also another driver of international trade. Technological changes, such as use of internet and mobile phones, have opened up new international sectors and allowed easy coordination of international marketing campaigns from domestic base (Carbaugh, 2004).
International marketing provides increased customer base to organizations, allowing them to raise the sales of their products and services. This assists in increasing organization’s profitability levels and at the same time contributes to enhancement of living standards and rates of employment within developing countries.
Wide customer base provides options to marketers, hence reducing the risks associated with focusing on one market. Companies with globally recognized brand have limitless opportunities within the foreign markets; they have the ability to capture customer loyalty since consumers are normally attached to brands they can trust and clearly recognize. Development of customer networks within foreign supply chains enables easy negotiation for better deals (Carbaugh, 2004).
Evaluate the strategic options open to large motor manufacturers regarding their international operations
Limited options exist for policy makers within automotive industry. There is much political opposition to large-scale manufacturers of vehicles, and at the same time, there exists high minimum efficient scale within production lines. Due to these aspects, the size of the local markets determines the rate of growth as well as potentiality of the industry.
Players in the automotive industry enjoy growing possibility of leveraging the newly opened global supply base which encourages both the local and the international competition (Van Biesebroeck & Sturgeon 2010).
Yanfeng has the capability of developing and marketing its line of branded vehicles within the shortest time possible by involving its expertise in dealing with the first-tier suppliers within China’s as well as western market. Winning new contracts with multinational assemblers would require such companies as Yanfeng to construct manufacturing firms near the main design centers (Sturgeon & Van Biesebroeck, 2009).
There is a notable shift of motor vehicle markets from the developed to developing world, in terms of enhancing production and design processes (Van Biesebroeck & Sturgeon 2010). Automotive industry in Shaghai is identified with probably few design centers, currently filled by Chinese firms. Companies require change inmarketing strategies in case of economic crisis. This usually targets all the elements of the marketing mix which include product, price, place and promotion.
Companies, such as Yanfeng should focus on concentrating resources in markets where their presence is so much felt. International market provides the best alternative environments for the firms experiencing domestic recession. In such cases, automotive companies are obliged to call back all weak designs from both the domestic and the international markets, hence concentrating on reinforcing appealing qualities, such as durability and functionality.
Focus should be shifted towards promotion element of the marketing mix which incorporates such factors as promotional and advertising budgets, use of media services, public relations and after-sales service. It is also important to focus on product strategy whereby technological innovations on new product, range of design, quality of automobiles and marketing expenditures are considered general marketing strategies (Calof, 1994).
Profitability of automotive companies within international market is not directly linked to marketing strategy used within areas of concentration. Diversification of automotive businesses shows no direct relationship with other performance-based variables within the market. However, strong relationship exists between entering foreign markets, average performance, sales and market share.
Implementing firm’s strength on foreign markets results in increased sales and market share but has less effect on the level of net profit. The only activity with the ability to improve net profit is to increase the level of marketing expenditure (Cameron and Green, 2009).
What are some of the positive and negative implications of the strategies and policies you have identified?
Market for motor vehicles as well as its production and design process is currently shifting to the developing world because automotive companies have realised perpetual increase in demand for cost effective vehicles based on fuel consumption, performance, and also environmental sensitivity. However, some special marketing strategies should be adopted, established and ratified by automotive multinationals for the purposes of capturing as well as retaining potential clients within emerging markets.
Such strategies incorporate production of cost effective vehicles as well as making intensive promotions capable of extensively satisfying consumer needs. Automotive industry is considered one of the most competitive industries targeting high-end consumers. International trade policies referred to the creation of free trade between regions have encouraged emergence of new manufactures, distributors, and rich product portfolio.
Such policies on exchange rates are crucial in the process of developing appropriate business models within defined market environments. This ensures that firms remain competitive and relevant. However, most of the multinationals like General Motors, Nissan, Peugeot, Toyota, Mitsubishi, and others formulate appropriate business strategies for the purposes of enhancing competitiveness, market visibility, and customer services (Appiah-Adu 1998, p. 118).
Trade policies further enable exchange of goods and services within the international market. The process ensures efficiency in marketing of goods and services beyond organizational and domestic boundaries. Despite all these, automotive companies should learn considerable avenues which can enable full utilization of opportunities within foreign markets, and this ensures increase in the level of global competitiveness (World Investment Report, 2006).
Policies within International market are usually totally different from those within domestic markets. Such environments can be differentiated based on market sizes, buyer behavior as well as marketing practices. International marketer grants careful evaluation of the market trends based on the nature of market segments within areas of target. Business operations within international markets always have either positive or negative effects on company’s operations and management.
This requires development of crucial decisions made by firms. Operational tactics within international market environment depends on several factors, such as deliberate policy decision, reaction to specific business opportunities, economic trends, political stability as well as competitive reasons, among others (Evenett et al., 2009).
Investors within automotive industry are currently not excited about pricing techniques used, despite the growth experienced in the industry. This could be attributed to the availability of variety of financial products within the market, such as ETFs.
Automotive products’ value has continued to soar despite price increase and increase in the number of players. Investors opt to use alternative financial products to make purchases. Since various companies have faced credit crisis over the years, the workers are now demanding for higher wages and better working conditions.
Reference List
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Calof, JL 1994, ‘The relationship between firm size and export behavior revisited’, Journal of International Business Studies, vol. 25, no. 2, pp.367–387.
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