Globalization increases the expanse of operations of a company, increasing its length and breadth of business, gaining advantage through it. General Motors is the world’s second-largest car and truck maker with brands like Buick, Cadillac, Chevrolet, and GMC (General Motors Company, 2009). GM has operations in 34 countries (General Motors, 2009). Its largest markets outside the US are China, Brazil, the United Kingdom, Canada, Russia and Germany (General Motors, 2009). According to the sales release of the company, GM has 48 percent of its sales outside America. Clearly, GM has a major chunk of its operations outside the US. In this essay, we will do a complete company analysis of GM and see how the problems facing the company can be transformed into an advantage for the company. In this regard, we will discuss the foreign operations of the company and see if they are a boon or bane to the company’s operations.
First, we will discuss the nature of operations of GM outside the US. According to the annual report of GM, there has been in-vehicle sales in the Asia Pacific, Latin America, Africa, and the Middle East, and has reduced in North America and Europe. As mentioned earlier, GM has operations in various countries outside the US which are clubbed together as in terms of sales, Europe had 22 percent of the overall sales, Latin America, Middle East, and Africa had 13 percent of the sales, and the Asia Pacific had 8 percent (General Motors Company, 2009). It had historically held operations in Mexico for manufacturing automobiles and take advantage of the low-cost labor in the country (Lange, 2009). There has been operational expansion in the BRICK nations (Brazil, Russia, India, and China). Therefore, the main operations outside the US included manufacturing, marketing, and sales of cars. Thus, the foreign operations consisted of a major part of its operations. Further, the annual report shows that the foreign operations have been lucrative for the company as it has facilitated the company to keep its sales growth, which declined drastically in the North American market due to economic recession and reduced consumer demand (GM Annual Report, 2009).
What kind of political factors affects operations in foreign countries? Let us consider the case of an outsourced auto plant in Mexico, where GM has shifted its plant in order to compete with foreign carmakers like Toyota and Honda and meet their cost-efficiency. This was a successful strategy as labor was cheaper in Mexico, and it gave GM a cost advantage. However, this strategy may not be sufficient in the present conditions as the US government is trying to retain as many US jobs as possible by stopping outsourcing (Lange, 2009). Apart from this in the European market, too there has been a decline in sales due to recession (GM Annual Report, 2009). In Europe, the company faced an operating loss of $2722 million. The cost of sales increased due to foreign exchange volatility, higher freight, and duties in the European market especially that in Russia and Korea (GM Annual Report, 2009). In the Asia Pacific, the country faced operating losses. It was only in Latin America/Africa/Middle East market that there has been a profit.
Operation in foreign countries has certain environmental risk factors, which cannot be overlooked. For instance, in the case of GM Europe, there has been an increase in excise and freight duty, which increased cost and thus reducing the profit of the subsidiary. In Latin America, there has been an increase in cost due to higher inflation, which increased the cost of raw materials imported from Venezuela and Argentina (GM Annual Report, 2009). Foreign exchange fluctuation made costs higher. The other risk factors, which must be mentioned, are credit market volatility, which may increase the risk of acquiring credit from the market. Foreign exchange rate risk has also had a significant effect on the increase in the cost of GM’s operations. Prices of commodities like oil and iron have been fluctuating in 2008-09, therefore increasing the risk of operations for GM.
The global economic crisis had hit the global automotive market and created a credit crisis, oil price volatility, and recession in North America and Western Europe. The further increased competition put pressure on these factors increased the pricing factor globally, therefore, reducing market demand for automobiles. However, these problems were more acute in markets of Europe and America and not so acute in emerging markets like China and India. Therefore, it can be said that though GM has been facing adverse economic conditions, it is the operations in the foreign markets, which have helped the company, sustain its operations largely.
Clearly, GM has the advantage of economies of scale and diversified business. It is one of the largest companies in the world, with operations in various locations and a large market share. However, the problem that it faces is that of declining demand and rising cost, which is making its operations inefficient and increasing the cost of production. Therefore, an increased production cost had increased the prices of the automobiles in all the markets, declining demand in a market where demand was already weak due to adverse macroeconomic conditions.
After the bankruptcy, GM has undergone many structural changes and has endeavored to make fuel-efficient cars, keeping in mind the depletion of the global oil resources (General Motors, 2009). It has reinvested in inventing the fuel cell technology, which intends to hydrogen fuel-powered vehicles. Apart from this GM has thrived to make electric vehicles. Therefore, GM thrives to achieve greater technological advancement and use it to differentiate its products to gain a competitive advantage.
Reference
General Motors Company. (2009). Hoover’s Company Records 10640: Hoover’s Company Records (Document ID: 168157571).
General Motors. (2009). Our Company. Web.
General Motors. (2009). Technology. Web.
GM Annual Report. (2009). SEC Filing. Web.
Lange, J. (2009). GM’s Mexico plants work on – for now – with low costs. Web.