Strategy of Automotive Emerging Markets - Research Paper Example

15-01-2007 Strategic Plan Introduction: In the present report we will look into the current global situation of car industry. From the perspective of the present car industry situation we will try to analyze the situation of the said industry through various strategic tools, which are available so far. As we know that global car industry is passing through rapid change and lots of external (macro) factors as well as internal (micro) factors affecting the overall industry. Similarly we will chose two players (incumbent firms) to analyze that how their strategies so far make them successful and in near future how they are going to change/modify their strategies to remain competitive in the market. Terms of reference: The report will consists three major sections: - 1. The first part of the report consists of various strategic tools available for strategic analysis to analyse global car industry. 2. The second part of the report consists of the two major players (General Motors and Toyota) chosen to analyze for their internal strategies. 3. The third part of the report consists of the future strategies for 5 years to be adopted by the two incumbent firms and we will provide the best possible strategy for next 3 years. External analysis of global car industry: [On the basis of MACRO (PESTEL) Analysis] (for reference see Appendix-1) The auto industry is often thought of as one of the most global of all industries. Car industry is experiencing rapid changes with globalization (Carson, 2004). Rapid changes are also altering the industry structure and attractiveness. The emerging markets include Latin America (Mainly Brazil), ASEAN countries, Eastern Europe, China and India. The fast growing emerging markets taken together, increased vehicle sales by 70-80% and production by almost 80-90%(Auto Industry Statistics). Car sales growth rate in US is around 3.5%, in Western Europe around 2.5% and in Japan around 1.5% while in China it is almost 9%. Globally the total car industry employment is predicated to reach 4.8 million by 2015. It is estimated that global car industry revenue reach 903 billion Euros by 2015. So the car industry has been focused on the potential of the emerging markets to offset the industries maturity and stagnation in the Triad economics of scale and spread the costs of developing new models. One of the main features of car industry experiencing is, manufacturers extending their operations in developing countries. For global producers, rapidly growing markets in developing countries were meant to provide for spreading vehicle development costs; for establishing cheap production sites for the production of selected vehicles and components; and for access to new markets for higher end vehicles. "Corporate strategies in regard to globalization vary depending on the starting point of individual firms, but there seems to be a large measure of convergence toward 1) building vehicles where they are sold, 2) designing vehicles with common 'global' under-body Platforms while retaining the ability to adapt bodies, trim levels and ride characteristics to a wide range of local conditions" (Sturgeon and Florida, 1999). Now we are going to analyze in short, different strategic tools, which are available to analyze global car industry. The strategic tools and different analysis techniques that we used to critically analyze the industry are: Macro environment: PESTEL analysis Industry: Porter's five forces Strategic groups and Cognitive map Key Factors for Success Marketplace: Market Segmentation, Targeting & Positioning Telescopic Observation Matrix Political forces as well as WTO regime plays major role in opening of the markets for foreign players. Change in the regulations of the market due to governments policies, foreign direct investment increased and also funds started to flow towards developing countries to establish new manufacturing plants. Due to these political and economical changes North American & European manufacturers opened new plants in Eastern Europe, Asia and South America. In many cases investment exceeded the potential of markets. The rush to invest in the emerging markets can be illustrated by Brazil and Indian markets (Automotive Emerging Markets, 1999). So political as well as economic (FDI, taxation rates, infrastructure facilities, cheap labor, technically competent trained manpower etc.) facilities provided by the governments of the respective developing countries attracted almost all the major car manufacturers to start their manufacturing plant in different such locations. Car industry also depends on economic and social environment. Demand for cars is very closely linked to a given countries economic performance. It has been estimated that 1% of increase in average earning could rise in 2% of car ownership. It means car ownership directly related to countries population income and social status. Consumers in high-income countries are willing to pay for more sophisticated vehicle. Consumer preferences arise partly in response to the characteristics to particular societies. Buying decisions of car depends lots of factors. Technology plays very important role in car industry. Technology represents another specific driver and can be considered under process cost, ecological pressure and increased consumer demands for new products, increasing choice, comfort, performance and safety, smart card for engine management system measuring quality of pollution and global positioning system. Fuel efficiency and alternate fuel vehicles/cars are in demand. In a fully globalize car industry, electronic development plays an important role. Electronic cost 23% of the total car value and by 2010 it becomes 40% of the value. So in the coming years technology will play a major role in the car industry. Ecological factors are also the major factors, which potentially have impact on car industry. Pollution and sustainable environmental policies has dominated the industry. CO2 emission and fuel consumption, alternative fuels are the major concerns. Noise and waste pollution is also the major concerns for the industry. Different countries have different emission norms and these norms have to be fulfilled by car industries (Madhavan, 2000). Increasing safety requirements and customers sophistication in the areas of handling and ride has meant particular emphasis is put on the design of the platform, the floor pan, suspension, steering etc. IT reduces exposure to the volatility of demand in any particular market. The pursuit of global design combined with the need for local adaptation has led global companies to adopt particulars strategies for emerging market (Humphrey & Memedovic, 2003). In the view of the above market situation globally, car manufacturers have to device different strategies for different markets and for different products. Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability (refer to Appendix-2). Globally car industry is facing numerous challenges. The entry of new competitors are getting lesser because no. of groups manufacturing cars becoming 7-10. Threats of substitutes are looming large on car industry. People preferences are changing very fast and if any organization does not produce cars according to customers preferences may move towards other substitutes. The bargaining power of buyer is increasing because of overproduction of cars and lesser demands. They have choices. Similarly suppliers bargaining power is also increasing. No. of OEM's becoming lesser and they have more than one company for which they are producing equipments. They demand major share in profit. Competition in car market is becoming fierce. Each manufacturer is trying to capture market share. Strategic groups and cognitive map: There are four main strategic groups in the car industry, which are: Luxury (premium) Conservative Sporty Practical and affordable As we have seen that every car manufacturer have different groups according to its geographical market and customer needs and preferences. Each market have its own requirements i.e. in the emerging market people require practical and affordable models due to their economics. Younger generation needs sporty models whereas the traditional societies and having more nationalistic feelings stick to their conservative models. Most of the North American and Western European people who have already have any other models and have higher income go for luxury models. So it has been quite clear that every geographical area and consumer's economic and social status as well as demographic factors play vital role in forming strategic groups. In this way car companies form cognitive maps for customer preferences and target the market accordingly. Companies are forming strategic groups through mergers and joint ventures across global. Each group has specific market place and segments (Appendix-3). Key factors for success: Each industry needs certain key factors for its success in the market. Car industry, which is so sensitive to external environmental changes have to identify certain key factors that will and is playing key to its success (See Appendix-4). Market Segmentation, Targeting & Positioning: Each car manufacturer across globe is trying to capture more and more market segments. They are producing different model cars for different market segments keeping in view their customers demand and marker position. They are targeting different geographical locations as well as different groups for different products. In this way each car manufacturer segment its market, target the customers and position their products to their advantage. For example General motors are the global market leader in terms of volume. They market their products all over the world and have eleven names under its control, with each one doing well in different regions. Branding Aspects: Every car company has brand names and several brand names are so much associated with the company that they became synonyms to company. All the major car manufacturers have some of the well known brand names like Toyota have corolla, Lexus etc. Some producers have a more diversity of cars in the industry than others; General Motors has the largest diversity of cars. In order to succeed in the industry, how ever man different cars a producer has, they have to maintain a good branding image and be recognized. Some producers in the industry are recognized to have good brands internationally. Core competency as corporate strategy: (please see Appendix-5). A Core Competency creates sustainable competitive advantage for a company and helps it branch into a wide variety of related markets. Core Competencies also contribute substantially to the benefits a company's products offer customers. At present the prevailing strategy is an acquisition or joint venture by a firm of a larger part of its distribution chain, moving it closer to selling directly to its ultimate customers. Most of the added value in the car industry is derived from finance, servicing and the sales of spare parts. Growth by acquisition/joint venture has been used by General Motors, Ford and Volkswagen to overcome mobility barriers and gain presence in the upper luxury segments, although General Motors in particular is more focused on the United States market in this respect. Internal environmental analysis for two incumbent firms in the industry (GM and Toyota): Each organization has certain values, aims, goals and strategies to achieve the set goals. Internal environmental provides a look to a company's core competencies and capabilities, value system, brand autonomies and architecture etc. Depending on the company's strength, weaknesses, threats and opportunities, internal environment places it in the competitive market. As we know only 7-10 groups are presently could be rated as global. Now we could analyze two companies for example General Motors and Toyota in the present market scenario. GM is the largest Car Company in producing total number of vehicles where as Toyota is fourth largest and have specific production system. GM and Toyota had adopted different strategies to remain competitive in the market (Detail about GM and Toyota please see in Appendix-6). Value chain and value system for GM and Toyota: The economics of the value chain i.e. customers; businesses and market placed are well interconnected (refer to Appendix-7). General Motors have experimental with market places for consumers, dealers and suppliers ultimately achieving best practices after a decade of forays the included e-GM, a turning point initiative that helped GM evolve to a better network integrated company. GM has started to reclaim the market share and has provided dealers not only with better tools for selecting and managing inventory, but also the first step in "build to order" a new process for consumers and manufacturers alike. Networked integration is far more efficient and powerful as a generator of value to customers, shareholders and employees. It rethinks the value chain and embraces shared risks and rewards, as well as alignment of interests through strategic alliances (Mitchell, 2002). Networked integration focuses on delivering unique core competencies supported by enabling competencies that are not indigenous to any industry. The result of networked integration has been achievement of break through strategies that redesign complete delivery processes and value chain. General motors using the hierarchical vertically integrated method. Now a carefully deployed market place engineered for the big three US automakers is becoming a platform for integrating design, engineering and collaboration tools for manufacturing and not just market place for supply chain. Most importantly, networked business tools are connecting consumers, dealers, manufacturers and suppliers. The "dealership" now consumer service portals integrated kiosks into their show rooms and have been showing the range of options and technical solution available across product lines. Whereas Toyota's value chain system which gives details to every step taken from start to finish the product it has included all appropriate areas such as transport, material, analyzing and storage to marketing aspects further down the chain such as media exposure and other key factors that enable the process to work as effectively as possible. Toyota used supplier associations for sharing information in areas such as statistical process control, total quality control, value analysis and value engineering. Toyota has a very sophisticated approach and has also covered all main areas necessary to meet and exceed customer expectations. Core competencies: General Motors has long worked on alternative-technology vehicles, and has recently led the industry with clean burning Flex Fuel vehicles that can run on either E-85 (ethanol) or gasoline. In May 2004, GM delivered the world's first full sized hybrid pickups, and introduced a hybrid passenger car. In 2005, the new Opel Astra Diesel Hybrid Concept Vehicle was introduced. The 2006 saturn VUE green line will be the first hybrid passenger vehicle from GM, but it too is a mild design. GM has hinted at new hybrid technologies to be employed that will be optimized for higher speeds such as are encountered in freeway driving. General motors, which used eGM as a vehicle to build a common technical infrastructure. Daimler Chrysler, Ford, GM were prominent in developing the world largest vertical market exchange, whose vision includes integration of engineering process as well as supply chain management. As eGM separate identity, reintegrates as holistic enterprise, evolution of auto centric configuration sites into conduits for leads to dealers and real time customers for feedback to marketing, engineering, and finally continued efforts to create purchasing sites for customers to buy from any dealers or in some locations direct from manufacturing sites. Due to integration of Electronic data interchange with that supply chain and just in time (JIT) inventory as a business process, not only reducing inventory costs but also allowing faster adjustments to changing demands in the market place. GM promoted sales through an employee discount to all buyers. Marketed as the lowest possible price, GM cleared an inventory buildup of 2005 models to make way for its 2006 lineup. So GM ephasised as its core competencies as innovation, launching new products, developing alternative models to capture more and more market share whereas Toyota has adopted the core competency model, which is based on to develop organizations core competency. Toyota is trying to improve its core competence to develop new models in shortest period of time in the industry. It has adopted its very specific lean production process. Toyota had also redefined the rule of the game. A recent Business week (2003) issue had Toyota on cover with the caption "can anything stop Toyota". Toyota is pioneer in learning product development a philosophy that emphasized development of new products, with minimum resources. Toyota maintained a four-year product life cycle for most of its product, shorter to their counterparts in NA & Western Europe. Toyota realized the need to balance two conflicting objectives, encouraging creativity and cutting costs. Toyota is currently the car company with the most advanced core competency in building hybrid vehicles which is a unique asset. Toyota prefers to develop and rely on the skills of its personnel and it shapes its product development process around this central idea: people, not systems, design cars. The World famous Toyota production system (TPS) has been well researched but could not be replicated by others. TPS objectives were to eliminate waste, reduce costs and response quickly to the changing customer needs, kanban, Jidoka & Kaizen are the unique features of the TPS. Toyota coordinated its vendors very effectively. Toyota used supplier associations for sharing information in areas such as statistical process control, total quality control, value analysis and value engineering. To cut costs, Toyota encouraged vendors to simplify the design of parts. Toyota used sequenced loads to increase efficiency. Products that were customized for different vehicles were brought to an assembly plant in the exact sequences needed for the cars being built on the assembly lines. So in all, Toyota's lean processes had made it a truly outstanding business model. Competitive strategies for the next 5 years for GM and Toyota with particular emphasis on the first three years given their strengths, weaknesses and capabilities: As we know GM and Toyota, the two major global manufacturers of cars has adopted different strategies to remain competitive in the market and trying to increase its market share. GM adopted value chain system and expanding through mergers and joint ventures. It is placing its products in the emerging markets through its joint venture companies. It collaborated design, engineering, and innovation in alternative fuel technology, sales and market place technologies for even greater efficiencies in manufacturing. Whereas Toyota adopted to improve its core competencies, lean production system. Developing new model is the core area of Toyota. Toyota production system and cost and time cutting techniques in car production are one of the main features, which stay as strategy. So both of the companies are trying to achieve strong competitive position and high market attractiveness through adopting GE Matrix model as strategic tool (Appendix-8). Analyzing and formulating strategy for GM & Toyota in the coming 3 years we find that both the companies have long-term growth perspectives. It collaborated design, engineering and sales and market place technologies for even greater efficiencies in manufacturing. Dealership will become portals for consumers where they evaluate the cars that they have researched and configured on their own through the company websites, and where they take possessions of the new cars purchased increasingly online and increasingly as build to order for markets of one. Dealership will participate in sales by adding values and not mark up to the sales process. Industry needs higher investments cost results that to make profit, manufactures have to run their plants at near capacity. In effort to maintain profitability global restructuring such as acquisitions, joint venture will be the features of future. GM is operating at various locations around the globe. Like most of the Global car manufacturers, GM is also investing and will continue to invest into production facilities in emerging markets in order to reduce production costs. The big three (GM, FORD & Chrysler) have merged with to strengthen position in the market. Again merger, joint ventures will be the trends of car industry in the coming years to expand its overseas markets. Similarly Toyota, which has its own model, is trying to formulate a strategy to adopt according to market situation, consumers need and preferences. Developing new model is the core area of Toyota. Quality has been the main criteria to be maintained in mass production system and Toyota developed process for everything. Toyota can develop cars in very short period of time. It takes only 12 months to go from design table to building new corolla class cars. In recent years to come, Toyota is striving to shorten the time even more (Sugiyama & Fujimoto, 2000). As we know the product life cycle time is decreasing for the car industry, also and other carmakers trying to cope with changing consumer's demands and preferences, Toyota has an advantage over its competitors. Toyota production system and cost and time cutting techniques in car production are one of the main features which stay as strategy for it in coming 3 years. In the coming 3 years, Toyota is making greater use of information technology. IT has cut costs and Toyota production line has grown roughly by 50% in just 10 years the no. Of models is up dramatically. Activates, connections and production flows in a Toyota factory are rigidly scripted yet at the same time Toyota operations are enormously flexible and adaptable. Activities and process are constantly being challenged and pushed to a higher level of performance, enabling company to continually innovate and to improve the rigid specification is very thing that makes flexibility and creativity possible (Spear& Boven, 1999). *************************************************************** References: 1. Auto Industry Statistics, website: www.adefa.com.ar accessed on 08 Jan. 2007. 2. Automotive Emerging Markets, Automotive Emerging Markets (London, Automotive World Publications, 20 April 1999). 3. Business Week, Article "Can anything stop Toyota" November 17,2003. 4. Carson, Iain(2004), Perpetual motion, For much of the 20th century, carmaking was the "industry of industries". Now it has to reinvent itself, The Economist print edition Sep 2nd. 5. Competitive situation in global car industry (2006), available on http://www.kpmg.de/about/press_office/13066.htm. Accessed on 09 Jan. 2007. 6. Humphrey, John & Memedovic, Olga (2003), The global automotive industry value chain: What Prospects for Upgrading by Developing Countries, United Nations Industrial Development Organization, Vienna. 7. Madhavan, S. (2000), "Mobility at a price: motor vehicles and the environment in South and South East Asia", in J. umphrey, Y. Lecler and M Salerno (eds) Global Strategies, Local Realities: The Auto Industry in Emerging Markets (Basingstoke, Macmillan,), pp.95-121. 8. Mitchell, Levy (2002), General Motors Analyzed via the Value Framework http://VMS3.info/Jul2002 accessed on 10 Jan. 2007. 9. Quadros, R., (2002) "Global quality standards, chain governance and the technological upgrading of Brazilian auto-component producers", IDS Working Paper No. 156 (Brighton, Institute of Development Studies). 10. Spear, Steven and Boven, H. Kent (1999), Harvard business review, September-October. 11. Sturgeon, T. and R. Florida (1999), "The world that changed the machine: globalization and jobs in the automotive industry", final report to the Alfred P. Sloan Foundation (Cambridge, MA, MIT). 12. Sugiyama, Y. and T. Fujimoto, (2000), "Product development strategy in Indonesia: a dynamic view on global strategy", in J. Humphrey, Y. Lecler and M. Salerno (eds) Global Strategies, Local Realities: The Auto Industry in Emerging Markets (Basingstoke, Macmillan,), pp. 176-206. 13. < http://www.gm.com> accessed on 10 Jan. 2007. ******************************************************************************** Appendices APPENDIX-1. PESTLE Analysis (PEST analysis) The PESTLE acronym. Political Economic Social Technological Legal Environmental PESTLE Analysis is a simple technique, which can be used in a fairly sophisticated way, particularly when it is combined with Risk Analysis, SWOT Analysis, an Urgency/Importancy Grid and expert knowledge about the organisation and its external factors. PESTLE Analysis is normally used to help organisations identify and understand the external environment in which they operate and how it will operate in the future. I believe that a version of PESTLE Analysis can be used by the individual for personal development planning. Some people will argue that this is a use for which it was never designed and for which it may be inappropriate. My answer to that is to "try it, it does work for PDP". The shorter version is a PEST Analysis - missing out Legal and Environmental factors. At the end of this document is an explanation of the use of PESTLE for organisational change. How PESTLE may be used for PDP For PDP purposes view yourself as being 'the organisation' - an organisation subject to external factors, and internal factors. 1 For each of the 6 PESTLE factors brainstorm and identify 5-10 things which, based on existing knowledge, may change or are likely to change over the short term, medium term and long term. 2 Then assess/evaluate their likely impact/affect/relevance/importance on/to/for you. Then narrow these down and rank them for importance/priority - so that each factor has 3 most important or most likely changes. Then select/choose the most important or most likely 3 changes from across all factors. You may need expert knowledge for this or need to use risk analysis and/or urgency vs importancy grid. 3 Then identify if a factor and/or its impact will be external or internal. Ie can you control it (internal) or does it control you (external). Or can you influence the external factor 4 Then identify an action plan. Then take action ! The above can be carried out for a short, medium or long term timescales. A number of PESTLE Analysis may be carried out for short term, medium term, internal and external and combined with Risk Analysis used to build up a useful picture of what the future might look like and what action we may need to take, or what the most important action which we need to take is and when we need to take it. The key thing though is to actually take the action. Example of how a simple grid may be used for PESTLE Analysis for your own PDP 'Thing' which may change Short, Medium or Long term Importance or Impact/Relevance Very High High, Medium, Low Very Low Internal (I can control it) or External (Beyond my Control) Action I intend to take Complete one box in LHS for each 'thing' which may change. Aim for 5-10 things for each of the 6 PESTLE factors. This will give you 30-60 things to look at further for your own PDP. The traditional use of PESTLE for organisational change is as follows: 1 List external PESTLE factors for the organisation - may need to brainstorm and have expert knowledge of the organisation and/or the world outside the organisation for this. 2 Identify the implications of each PESTLE factor for the organisation. 3 Decide the importance of the implications of the external factors - ranks or rate them. Normally this involves assessing their: impact over time, impact by type (positive or negative affects) and impact by dynamics (ie is the significance/importance of the implication increasing, decreasing or remaining unchanged). 4 Rate the importance of the implication to the organisation (eg using: critical, very impt, impt, significant, unsignificant). This may be further refined by ranking the likelihood of it happening (eg using: will happen, extremely likely, very likely, likely, unlikely, remote chance of happening, will not happen). 5 Scenario building. Or 'what if..' Used to develop scenarios of different alternative futures for ht organisation. APPENDIX-2 Strategy - Analysing competitive industry structure Defining an industry. An industry is a group of firms that market products, which are close substitutes for each other (e.g. the car industry, the travel industry). Some industries are more profitable than others. Why The answer lies in understanding the dynamics of competitive structure in an industry. The most influential analytical model for assessing the nature of competition in an industry is Michael Porter's Five Forces Model, which is described below: Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five "competitive forces" are - The threat of entry of new competitors (new entrants) - The threat of substitutes - The bargaining power of buyers - The bargaining power of suppliers - The degree of rivalry between existing competitors Threat of New Entrants New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are very easy to enter (e.g. estate agency, restaurants). Key barriers to entry include - Economies of scale - Capital / investment requirements - Customer switching costs - Access to industry distribution channels - The likelihood of retaliation from existing industry players. Threat of Substitutes The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. The threat of substitute products depends on: - Buyers' willingness to substitute - The relative price and performance of substitutes - The costs of switching to substitutes Bargaining Power of Suppliers Suppliers are the businesses that supply materials & other products into the industry. The cost of items bought from suppliers (e.g. raw materials, components) can have a significant impact on a company's profitability. If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive. The bargaining power of suppliers will be high when: - There are many buyers and few dominant suppliers - There are undifferentiated, highly valued products - Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers threatening to set up their own retail outlets) - Buyers do not threaten to integrate backwards into supply - The industry is not a key customer group to the suppliers Bargaining Power of Buyers Buyers are the people / organisations who create demand in an industry The bargaining power of buyers is greater when There are few dominant buyers and many sellers in the industry - Products are standardised - Buyers threaten to integrate backward into the industry - Suppliers do not threaten to integrate forward into the buyer's industry - The industry is not a key supplying group for buyers Intensity of Rivalry The intensity of rivalry between competitors in an industry will depend on: - The structure of competition - for example, rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader - The structure of industry costs - for example, industries with high fixed costs encourage competitors to fill unused capacity by price cutting - Degree of differentiation - industries where products are commodities (e.g. steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry - Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is a significant cost associated with the decision to buy a product from an alternative supplier - Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry is more intense. Where competitors are "milking" profits in a mature industry, the degree of rivalry is less Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing down factories) - then competitors tend to exhibit greater rivalry. APPENDIX-3 STRATEGIC GROUPS AND COGNITIVE MAP AND GSS (Group support system). APPENDIX-7 The Value Chain framework of Michael Porter is a model that helps to analyze specific activities through which firms can create value and competitive advantage. The activities of the Value Chain Primary activities (line functions) Inbound Logistics. Includes receiving, storing, inventory control, transportation planning. Operations. Includes machining, packaging, assembly, equipment maintenance, testing and all other value-creating activities that transform the inputs into the final product. Outbound Logistics. The activities required to get the finished product at the customers: warehousing, order fulfillment, transportation, distribution management. Marketing and Sales. The activities associated with getting buyers to purchase the product, including: channel selection, advertising, promotion, selling, pricing, retail management, etc. Service. The activities that maintain and enhance the product's value, including: customer support, repair services, installation, training, spare parts management, upgrading, etc. Support activities (Staff functions, overhead) Procurement. Procurement of raw materials, servicing, spare parts, buildings, machines, etc. Technology Development. Includes technology development to support the value chain activities. Such as: Research and Development, Process automation, design, redesign. Human Resource Management. The activities associated with recruiting, development (education), retention and compensation of employees and managers. Firm Infrastructure. Includes general management, planning management, legal, finance, accounting, public affairs, quality management, etc. Creating a cost advantage based on the value chain A firm may create a cost advantage: by reducing the cost of individual value chain activities, or by reconfiguring the value chain. Note that a cost advantage can be created by reducing the costs of the primary activities, but also by reducing the costs of the support activities. Recently there have been many companies that achieved a cost advantage by the clever use of Information Technology. Once the value chain has been defined, a cost analysis can be performed by assigning costs to the value chain activities. Porter identified 10 cost drivers related to value chain activities: 1. Economies of scale. 2. Learning. 3. Capacity utilization. 4. Linkages among activities. 5. Interrelationships among business units. 6. Degree of vertical integration. 7. Timing of market entry. 8. Firm's policy of cost or differentiation. 9. Geographic location. 10. Institutional factors (regulation, union activity, taxes, etc.). A firm develops a cost advantage by controlling these drivers better than its competitors do. A cost advantage also can be pursued by "Reconfiguring" the value chain. "Reconfiguration" means structural changes such as: a new production process, new distribution channels, or a different sales approach. Normally, the Value Chain of a company is connected to other Value Chains and is part of a larger Value Chain. Developing a competitive advantage also depends on how efficiently you can analyze and manage the entire Value Chain. This idea is called: Supply Chain Management. Some people argue that network is actually a better word to describe the physical form of Value Chains: Value Networks. Book: Michael E. Porter - Competitive Advantage APPENDIX-8 The General Electric Business Screen GE Business Screen Matrix The General Electric Business Screen was originally developed to help marketing managers overcome the problems that are commonly associated with the Boston Matrix (BCG), such as the problems with the lack of credible business information, the fact that BCG deals primarily with commodities not brands or Strategic Business Units (SBU's), and that cashflow if often a more reliable indicator of position as opposed to market growth/share. The GE Business Screen introduces a three by three matrix, which now includes a medium category. It utilizes industry attractiveness as a more inclusive measure than BCG's market growth and substitutes competitive position for the original's market share. So in come Strastraegic Business Units (SBU's). A large corporation may have many SBU's, which essentially operate under the same strategic umbrella, but are distinctive and individual. A loose example would refer to Microsoft, with SBU's for operating systems, business software, consumer software and mobile and Internet technologies. Growth/share are replaced by competitive position and market attractiveness. The point is that successful SBU's will go and do well in attractive markets because they add value that customers will pay for. So weak companies do badly for the opposite reasons. To help break down decision-making further, you then consider a number of sub-criteria: For market attractiveness: Size of market. Market rate of growth. The nature of competition and its diversity. Profit margin. Impact of technology, the law, and energy efficiency. Environmental impact. . . . and for competitive position: Market share. Management profile. R & D. Quality of products and services. Branding and promotions success. Place (or distribution). Efficiency. Cost reduction. At this stage the marketing manager adapts the list above to the needs of his strategy. The GE matrix has 5 steps: One - Identify your products, brands, experiences, solutions, or SBU's. Two - Answer the question, What makes this market so attractive Three - Decide on the factors that position the business on the GE matrix. Four - Determine the best ways to measure attractiveness and business position. Five - Finally rank each SBU as either low, medium or high for business strength, and low, medium and high in relation to market attractiveness. Now follow the usual words of caution that go with all boxes, models and matrices. Yes the GE matrix is superior to the Boston Matrix since it uses several dimensions, as opposed to BCG's two. However, problems or limitations include: There is no research to prove that there is a relationship between market attractiveness and business position. The interrelationships between SBU's, products, brands, experiences or solutions is not taken into account. This approach does require extensive data gathering. Scoring is personal and subjective. There is no hard and fast rule on how to weight elements. The GE matrix offers a broad strategy and does not indicate how best to implement it. Appendix-6 General Motors General Motors Corp. (NYSE: GM), the world's largest automaker, has been the global industry sales leader for 75 years. Founded in 1908, GM today employs about 327,000 people around the world. With global headquarters in Detroit, GM manufactures its cars and trucks in 33 countries. In 2005, 9.17 million GM cars and trucks were sold globally under the following brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, HUMMER, Opel, Pontiac, Saab, Saturn and Vauxhall. GM's largest national market is the United States, followed by China, Canada, the United Kingdom and Germany. With the largest selection of any automaker in the world, GM delivers quality, reliability and durability in every car. GM also has advanced technology collaborations with Daimler Chrysler AG and BMW AG of Germany and Toyota Motor Corp. of Japan, and vehicle manufacturing ventures with several automakers around the world, including Toyota, Suzuki, Shanghai Automotive Industry Corp. of China, AVTOVAZ of Russia and Renault SA of France. Genuine GM Parts and accessories are sold under the GM, GM Performance Parts, GM Goodwrench and ACDelco brands through GM Service and Parts Operations, which supplies GM dealerships and distributors worldwide. GM engines and transmissions are marketed through GM Powertrain. Toyota : The Toyota Motor Corporation was founded in September 1933 when Toyoda automatic loom created a new division devoted to the production of automobiles andproduced first Model A1 passenger car in May 1935. Toyota has a large market share in the United States, Europe and Africa and is the market leader in Australia. It has significant market shares in several fast-growing Southeast Asian countries. In 2005, Toyota, combined with its half-owned subsidiaryDaihatsu motor company, produced 8.54 million vehicles, about 500,000 fewer than the number produced by GM that year. In some months in 2006, Toyota passed Ford in selling cars. Appendix-5. Core competency model: A Core Competency is a deep proficiency that enables a company to deliver unique value to customers. It embodies an organization's collective learning, particularly of how to coordinate diverse production skills and integrate multiple technologies. Such a Core Competency creates sustainable competitive advantage for a company and helps it branch into a wide variety of related markets. Core Competencies also contribute substantially to the benefits a company's products offer customers. To develop Core Competencies a company must: Isolate its key abilities and hone them into organization-wide strengths; Compare itself with other companies with the same skills, to ensure that it is developing unique capabilities; Develop an understanding of what capabilities its customers truly value, and invest accordingly to develop and sustain valued strengths; Create an organizational road map that sets goals for competence building; Pursue alliances, acquisitions and licensing arrangements that will further build the organization's strengths in core areas; Encourage communication and involvement in core capability development across the organization; Preserve core strengths even as management expands and redefines the business; Outsource or divest non core capabilities to free up resources that can be used to deepen core capabilities Common Uses Core Competencies capture the collective learning in an organization. They can be used to: Design competitive positions and strategies that capitalize on corporate strengths; Unify the company across business units and functional units, and improve the transfer of knowledge and skills among them; Help employees understand management's priorities; Integrate the use of technology in carrying out business processes; Decide where to allocate resources; Make outsourcing, divestment and partnering decisions; Widen the domain in which the company innovates, and spawn new products and services; Invent new markets and quickly enter emerging markets; Enhance image and build customer loyalty. Appendix-4 Shift in the market (from North America and Western Europe to Asia, East Europe and South America) Quality product with reducing costs Development of small car's (Biggest market share will be covered by small car's) Fuel-efficient and move on alternative fuels Cross border activities such as partnership, joint ventures, acquisition, mergers, manufacturing outsourcing Product material innovations and Assembly innovations Decrease product development cycle New models and new technologies Low margin products, small cars and Hybrids and family sedans Quality, safety, new technologies with fuel efficiency, serviceability, alternative fuels and low maintenance costs. Market Segmentation, Targeting & Positioning Read More