Competing successfully implies implementing specific strategies, which objectives can be summarized as knocking the socks off rival companies by doing a better job of providing what buyers are looking for (Thompson, Gamble and Strickland). Applying the aforementioned objectives, it can be seen that the investment decision taken by Mercedes-Benz is exactly targeting such strategy. Mercedes-Benz is planning 3 billion Euros investments in German passenger car locations, almost half of which were already put in expanding the company’s Rastatt plant and building a new plant at the Hungarian location of Kecskemét, with 600 and 800 million Euros respectively (Daimler “Daimler Invests Euro 600 Million in Center of Excellence for Compact Vehicles”). Examining such investments, it can be seen that the company has chosen the focused low-cost provider strategy, in order to gain competitive advantage, specifically in a time of global crisis.
Two distinctive characteristics of the investments made by Mercedes-Benz can be seen in the niche chosen for the investments and the main objectives stated by the company. Regarding the first, the production enlargement is concerned with the expansion of the line of products for the A- and B-class vehicles. Both classes are compact luxury cars, and according to the company, it will expand the production line to four models instead of two, in order to acquire new customer groups (Daimler “Daimler Invests Euro 600 Million in Center of Excellence for Compact Vehicles”). Looking at the structure of the unit sales for 2008, it can be seen that the sales for the A- and B-class cars are coming second after the C, CLK and SLK- class, which are ranged from sports to premium, and smaller than executive in size (Daimler “The Mercedes-Benz Cars Division”). In that regard, it can be assumed that a larger demand is present for the smaller cars in the luxury segment, as well as the focus on the cost reduction, where among the expansion objectives it was stated that “Production costs are a key factor in the competitiveness of the price-sensitive compact vehicle segment” (Daimler “Daimler Invests Euro 600 Million in Center of Excellence for Compact Vehicles”), as well as making the small-car lineup more profitable (Rahn and Reiter).
The aforementioned characteristics of the investments match with the strategy characteristics in focusing on a narrow buyer segment and outcompeting by serving the members of the segment at a lower cost (Thompson, Gamble and Strickland). Accordingly, the differentiation of the product line, combined with the efforts to lower the costs can be seen successful, due to the fact that the industry itself has many niches and segments, which allows the company to focus its strengths and capabilities, and avoiding competition for the same customers.
Analyzing the preferences for the selected locations and the way they will allow the reduction of production costs, the geographical locations is concerned only with the Hungarian plant, as the Rastatt plant will be only updated. In the latter, the update of the plant includes 710,000 square foot body shop, which implies cost reduction through increasing the volume of the manufacturing (Abuelsamid). Accordingly, in Kecskemét, the location choice might be based on the central position of the Hungarian city in Europe, as well as the work force costs reduction. Considering that this particular car segment is price-sensitive, it can be assumed that the creation of 2,500 job positions in the economically underdeveloped Kecskemet will allow saving a significant amount of costs on workers wages (Associated Press).
Thus, it can be seen that commercial investments in the case of Mercedes-Benz imply two distinctive approaches combined together, i.e. the differentiation of the products in the specific segment, as well as reducing the costs in production. Further investments in the 3 billion plan might consider upgrading other manufacturing plan for other segments of the market.
Works Cited
Abuelsamid, Sam. “Daimler Launches €600 Million Small Car Investment, a-Class Bev in 2010”. 2009. AutoBlog Green. Web.
Associated Press. “Daimler Starts Construction of Hungary Car Plant “. 2009. New York Times. Web.
Daimler. “Daimler Invests Euro 600 Million in Center of Excellence for Compact Vehicles”. 2009. Daimler.com. Web.
“The Mercedes-Benz Cars Division”. 2009. Daimler.com. Web.
Rahn, Cornelius, and Chris Reiter. “German Carmakers May Face Indian Threat in Small Cars (Update1)”. 2009. Bloomberg.com. Web.
Thompson, Arthur A., John Gamble, and A. J. Strickland. Strategy : Winning in the Marketplace : Core Concepts, Analytical Tools, Cases. Boston, Mass.: McGraw-Hill, 2004. Print.