American Choice - General Motors- By- Ninad Pattalwar
Based in US General Motors (GM) – has many trademarks under its operation such as Buick, Cadillac, Chevrolet, Gmc, Golden, Oldsmobile, Pontiac, Saturn, Opel Vauxhall and Saab, GM is the world largest automobile producer. General Motors Corporation (GM) is the world’s largest automaker employing over 325,000 people in 32 countries. In 2006 it sold over 9 million cars and trucks globally in 5 continents with a global market share of 13.5 %. GM have been involved in a range of global ventures aimed at extending the carmaker’s market penetration and also increase its market share as well as sales. GM used exports, acquisitions, joint ventures and strategic alliances to enter foreign markets based on business considerations. GM expanded its capabilities in manufacturing through technological competences. This was achieved by forming subsidiaries, alliances and joint ventures with other automobile companies in different parts of the world. According to (GM Press Release, 2006), the company has been involved in a range of global ventures throughout its history, each of which has aimed at extending the carmaker’s market penetration. Partnering enables GM to rapidly expand its technical fields and bring that knowledge to bear on corporate problems. Through the various stages of internationalisation, GM was able to expand distribution and provide access to materials. Additionally, the company developed and improved its operations, facilities and processes. It also provided access to new technology, new knowledge and new capabilities by collaboration.
The American automobile industry is the biggest in the world in terms of number of cars manufactured and sold. The U.S. automobile market is saturated with the global car manufacturing companies however majority of the market share being in Japan and US, the level of consumption is decreased as there are too many entrants competing in the automobile industry. Because of this decrease in consumption the automobile industry leaders have been offering attractive incentives and lower prices leading to loss of profitability. The world-class automakers are gradually expanding into foreign markets, as new emerging markets in China, Southeast Asia and South America are showing signs of sustainable economic growth. GM move to internationalise was mainly to reduce costs, attract a larger market and forming strategic allies. The GM strategically allied with Fiat in 2000 by acquiring 20 percent of Fiat's equity to establish a joint procurement venture of 50 percent capital each for concentrated purchasing of about $32 billion per annum this alliance has the capacity to strengthen their bargaining power as well as reducing the supplier management cost. GM also moved production overseas as there were too many competing in the home markets. GM needed to find new incentive to manage a new market with low cost. As a result of this they expanded their operations in China. General Motors is the best selling foreign auto maker in China. The brand which is a part of GM is especially strong, the initiated sales in China in 2004, starting with imports from the United States. GM pushed the marketing of the brand in China in 2005.The Company manufactures most of its China-market vehicles locally, through its joint venture. Shanghai GM, a joint venture between the Chinese company SAIC and General Motors was created on March 25, 1997. The Shanghai GM plant was opened December 15, 1998 when the first Chinese-built Buick came off the assembly line.
Hence These Internationalisation steps by GM could be explained by the following models and theory
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‘Dunning’s Eclectic theory’ which sets out to explain the extent the form and pattern of international production and is founded on the juxtaposition of the ownership- specific advantages of firms contemplating foreign production, the propensity to internalise the cross border markets for these and the attractions of a foreign markets. (Dunning 1998) GM’s move to manufacture most of its China-market vehicles locally, through its joint venture, GM also plans to create a research facility in Shanghai for $250m to develop and therefore GM follows a path suggested by dunning to gain advantage in terms of competitiveness and cost by ownership in foreign market and aim to expand.
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The Network Approach which emphasises the industry as systems of networks, each firm in the network has relationships with customers, suppliers etc these relations are important competitive relations. the Network model also suggests that the firm needs to take into account and evaluate not only its own position in the market in relation to its customers but also the environment of that market in relation to others such as competitors, new entrants etc. GM and Fiat Have formed strategic alliance, GM motors have 20% share in Fiat, and while Fiat SpA will receive in exchange 5.1% of GM's shares production and industrial alliance has taken the form of two joint ventures (owned 50% by Fiat and 50% by GM): the first will conduct purchasing activities, while the second will produce engines and gear equipment. Cutting expenses will be the main policy as regards production. Hence GM have followed the network model to some degree as their joint venture come in terms of relations with Fiat, by collaborating they have reduce cost and innovated new production techniques. Which gave both of them some degree of competitiveness as they have gained purchasing power as well as reduced cost in terms of purchasing from the supplier.
Asian Choice- Honda Motors Ltd -By Yinliang Shi
The reason for choosing Honda as an example of Asian multi-national enterprise for this report is that Honda is heavily, successfully and still increasingly involved in the global markets since it began its international operation in 1960s. Honda was not born globally; as a relatively late entrant into Japanese automobile industry in 1950s it was later pushed to enter foreign market by intense domestic competition (arguably that there was no first-mover advantages could be gain in Japanese motor industry at that time), it realized under such intense competition it was too hard to increase the market share therefore it was impossible to benefit from large production and thus the economies of scale. However such intense domestic competition had positive effect on Honda too, that is while it was trying to survive by competing with world class rivalries (such as Toyota) in the home market, it was pushed to innovating its products and improve production techniques, learning and responding the rivalries’ strategies by monitoring them and was benefited from the level of sophistication of the market, such as supply of skilled labors and suppliers, all of these benefits gained enabled Honda’s products being competitive in foreign markets later, and also the experience curve theory suggests all of these factors could increase the efficiency of business too, therefore lower production costs were achieved rather by the economies of scale at that time.
In contrast with the strategies that have been made by Honda in its internationalization process, these theories and models below will be looked at:
-Uppsala internationalization model
-Heckscher-Ohlin’ s theory of factor endowment
-The Linder theory of overlapping demand
-Raymond Vernon’s international product life cycle (IPLC)
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Background of Honda Honda is the 6th largest automobile manufacturer in the world as well as the largest engine-maker in the world (according to wikipedia), the products it offers today are highly diversified and the range is still evolving. The company manufactures , , , , , and jet engines, , water craft, , marine engines, lawn and garden equipment, and aeronautical and other mobile technologies. Honda was established in 1948, until 2002 there were 119 production facilities in 33 countries that supply Honda products to nearly every country in the world.
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Honda′s internationalization process .Honda began its international operation in 1959, when it founded the subsidiary "Honda Motor Co. Inc." in the United States. The reason behind this move is that there was excessive demand in the U.S. market, whereas Japanese domestic automobile market was largely occupied by few leading corporations, therefore to fully utilise its productive capacity Honda had to seek the demand outside the domestic market, another reason for choosing U.S. market is because the status of economic development of U.S., according to The Linder theory of overlapping demand, countries with similar GDP per capita indicates that consumers within these markets are more likely to have similar demand and purchase power, regardless other factors that have the impact on international trade, therefore U.S. market was more readily to accept Honda’s products than other counties with larger difference in GDP per capita.
Initially all cars were built in Japan and then exported into the United States. Therefore, Honda Motor Co. Inc. was acting as an intermediary for Honda of Japan. This strategy matches the third stage of Uppsala internationalization model, this model suggests that the internationalization process of a firm should normally follow four stages; Hollensen (2008) states what they are:
Stage 1: no regular export activities (sporadic export)
Stage 2: Export via independent representatives (export modes)
Stage 3: Establishment of a foreign sales subsidiary
Stage 4: Foreign production/manufacturing units
And this diagram clearly demonstrates the model:
Hollensen (2008) also stated that ‘firms with large resources can take larger internationalization steps and when market conditions are stable and homogeneous, relevant market knowledge can be gained in ways other than experience.’ This could explain why Honda took its initial step of internationalization bigger according to The Uppsala Model.
‘In the beginning of its international operations, Honda had low commitment, because it wanted to avoid risk. Due to the fact that Honda was a late entrant in the automobile industry and therefore had difficulties in competing in Japan, Honda had to diversify its sources of sales (Daniels & Radebaugh, 2001). So, Honda pressed with its internationalization ahead and therefore it had to see the world as its market. In the late 1970s, Honda had to face new problems: The American government restricted imports of Japanese cars. Honda reacted on this situation by diversification of its production (Daniels & Radebaugh, 2001) and undertook an FDI and founded "Honda of America Manufacturing", which started car production in 1981 with assembling of the Honda Accord. However, the parts for the cars were still manufactured in Japan, only the assembling took place in the United States. In this time, Honda pursued a global strategy: The same cars were sold around the world, so Honda was able to sell cars very cheaply due to economies of scale.’ (2001)
In the mid 1980s, while enjoying the benefit from the economies of scale Honda realized that ‘uniform product for all’ strategy gives other local competitors the advantage to specialise their products to meet particular local demand, therefore Honda itself had to ‘adapt to local markets and started to change its marketing- and internationalization-strategy from a global approach to a multi-national approach.’ Honda named this "Glocalization" (http://world.honda.com). In order to increase market share, Honda wanted to be able to serve its different customers with their different needs around the world with adjusted products. So, the management decided to divide the world into five different strategic regions: North America, Europe / Middle East / Africa, South America, Asia / Oceania and Japan. meanwhile Honda was able to benefit from variety geographic locations in many aspects, according to Heckscher-Ohlin’ s theory of factor endowment, Honda was able to lower its production costs by sourcing cheaper production factors such as raw materials, labours (both skilled and relatively unskilled at a lower price), energy, plants, due to the different regions are rich in different factor endowments, therefore the prices for a particular factor differs from one to another. Also large geographic scale allowed Honda to distribute its variety products to best profitable market according to their international product life cycle, such as new products were always designed, developed, tested and promote in advanced developed countries first, in case of Honda U.S. and Canada are always playing such role, and then when demand for a product start to cease it will start to be produced elsewhere perhaps in less developed countries where demand are still high, therefore worldwide operations became even more flexible and efficiency.
Furthermore, the subsidiaries in all strategic regions became more independent from the parent-company: They were responsible for their R&D, production, profits etc. Honda now had to restructure its production and R&D. During the mid 1980s, R&D subsidiaries were founded in all strategic regions, for example "Honda Research of America" in 1984. The problem was that developing and producing different cars for each strategic region was too expensive to sell the cars cheaply, because economies of scale were not achievable. With the purpose to achieve economies of scale and adapting to local markets at the same time, Honda developed a suitable strategy: The platform (the chassis, motor, basic car body, etc.) for the cars was developed in a common development-centre. Afterwards, these platforms were brought to the subsidiaries in all strategic regions and were modified for the different customers. For example, the Honda Civic was in the United States a little bit longer, had a different engine, was air-conditioned etc. in contrast to Europe or Japan. Development costs for the platforms were shared by all subsidiaries. So, Honda put itself into a position in which it had diversified products which were still similar, so it could serve different markets with adjusted products and could achieve economies of scale at the same time.
The figure below shows the continuous shifting from production in Japan to production abroad.
Figure: Development of the Japanese car production
From: Business Week - Japan is back
During Honda’s internationalization process innovation is the key success to keep company involved in global market deeper and deeper, recent years Honda had been very keen in seeking to improve the energy efficiency and safety of their products, and have a very good reputation amount its industries.
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Quote ‘Honda started its internationalization very early and achieved through steady adoption to international competition and changed operational environments, e.g. import restrictions in the USA, one of the most competitive positions in the car business. Furthermore, Honda′s marketing strategy - building different, cheap cars for different markets - has contributed to the high demand for Honda′s cars. Moreover, Honda was able to achieve economies of scale and had diversified products at the same time. Thus, Honda will remain one of the greatest competitors in the car-industry as a consequence of its brilliant marketing-strategy, its high efficient production and not least its adaptability.’ (2001)
Comparison of the Honda & General Motors in terms of internationalisation-By Iqbal Husain
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