International Market

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INTRODUCTION:

TRENDS IN THE INTERNATIONAL MARKET:
The international motor vehicle production (including passenger cars, light vehicles, trucks and buses) reached all-time record levels just before the crisis by around seventy million units in 2006, 2007 and 2008. In 2009 the output dropped to 60 million that is almost the level prevailing in 2003. By 2010 it reached 77 million (26 per cent high on the 2009 figure, according to the data from OCIA, the INTERNATIONAL MARKET International Organization of Motor vehicle manufacturers), another all-time high in the history of the automotive industry.
Worldwide production has grown at around 3 per cent annually over the past decade, but the performance differed significantly among the main areas. Undoubtedly, the geography of the automotive industry has changed immensely in the recent years:
• The United States and Japan who accounted for more than 40 percent of the world production in 1997 experienced their combine share falling to 22 per cent in 2010.
• In 2009 China surpassed Japan producing twice as many vehicles as Japan.
• 2009 marks the first year in the history of automotive industry where the emerging markets captured the industrial ones (North America, Japan, Western Europe) in terms of production; whose share has gone from slightly more than 25 percent to 57 per cent of which. In the period of 2000-2010, 29 million increase in production took place of which 16 million can be attributed to China alone.
• The proportion of car produced in the BRIC countries (Brazil, Russia, India and China) has increased to one in three in 2010 from less than one in ten previously.
If we consider emerging markets the “winners” during this period, the “losers” were those countries with stronger hold in the automotive production US (-5 million units), Canada (-0.9 million), Japan (-0.5 million); among the European markets France (-1.1 million), Italy (-0.9), UK (-0.4 million).
As a result of these trends the European market is suffering from excess capacity; INTERNATIONAL MARKET in Western Europe, it can be estimated to be around 20-25 percent. In line with the premise of no further investments, the growth rate of 2-2.5 per cent would be insufficient to absorb the excess capacity in Western Europe.
Almost 20 million vehicles were produced in Europe in 2010. However, the figure is substantially lower than the 23 million vehicles produced before the crises in 2007 through the production fell to 17 million units in 2008; it recovered in 2010 (almost +15 percent) remaining significantly below the pre-crisis level along with the level a decade ago.
Production in the United Kingdom faced a long-term decline; the factories of Toyota, Nissan, Honda, Tata Group ( which in 2008 acquired from Ford the brands Jaguar and Land Rover), BMW ( owners of the factory of Mini and Rolls Royce), and Opel (GM) are currently producing 1.4 million vehicles, in comparison to almost 2 million a decade ago (Ferrazzi, 2012).

TRENDS IN UNITED KINGDOM’S INDUSTRY:
Notwithstanding the stable development in demand, the industry will be experiencing structural changes that include a large portion of the built players near to the risk of default. In Europe, the elimination of MG Rover as the last British‐owned volume maker and the current years of problems at Fiat are some examples. Further exits of strong players remain exceedingly likely, a business sector space that will conveniently be loaded with a third wave of low‐cost imports, from China, India and others.
There are three trends that derive these competitive dynamics; regionalization, fragmentation and saturation.

REGIONALISATION:
With the decline in trade barriers and more permeable borders several distinct swings have taken place that have changed the structure of the industry as it is today. As the demand in the developed regions is at stand-still, considerable investments are seen to be made in the emerging markets.
The opening of Chinese domestic markets along with strict progressive policy has enabled the drastic emergence of the Chinese automotive industry. Surprisingly, with no passenger car production before 1980, China produced 5.39m cars in 2007. Of these, 90% were produced by the joint venture companies of the large foreign manufacturers, and virtually all of these are (so far) sold domestically.
What can be observed here is not commonly referred to as globalization, but is better referred to as regionalization of the industry. The net export balance that raised the growth of the automotive industry in the industrialized world during the last century is gradually being replaced with an infrastructure that builds automobiles locally, closer to the customer.

LABOUR COST:
Lower labour cost is essentially put forward as the main reason for the rise in de-centralization of global production into low-labour charge countries, and the comparative nominal hourly compensation is indeed glaringly different (see Table 3).
Table 3: Labor cost per hour in automotive manufacturing, US$. Source: ILO
Germany $29.91 Korea $10.28
US $21.97 Czech Republic $ 4.71
UK $20.37 Brazil $ 2.67
Japan $20.09 Mexico $ 2.48
Spain $14.96 China $ 1.30

Comparing the above hourly rates a worker earns then it is obvious that labor cost is indeed a significant economic factor in the lower segments of the market, yet does play an diminishing role in the higher market segment, where firms do not contest on cost alone, but on technological innovation, design, and brand image are taken into account as well.

FRAGMENTATION OF MARKETS:
This key trend is relatively easy to observe; the implosion of traditional vehicle segments, complementing the ‘cross‐over’ and niche segment vehicles. The traditional segments of small cars (B‐segment, e.g. Polo or Fiesta), compact cars (C‐segment, e.g. Golf and Focus), family cars (D‐segment, e.g. Passat and Mondeo), and executive class (E‐segment, such as E‐class and 5‐series) have been accompanied by SUVs, MPVs, UAVs, and others. Quantitatively, this trend can be easily observed: across Europe, in 1990 a total of 187 models were offered, which increased to 315 models in 2003. This increase is both due to the new segments, such as MPVs and SUVs, along with model line expansions in existing segments. The B‐segment of the Corsa and Fiesta, for example, saw an increase from 16 to 31 models over that time period (Holweg, 2009).

SATURATION:
The UK auto-motive industry is suffering from excess assembly-line capacity as observed in the other markets as well. As mentioned in the trends of the international market.

SUCCESS OF JAGUAR LAND ROVER SINCE 2008:
Jaguar was bought by Ford in 1989; the first of Jaguar’s two major crisis points struck in 2007. Ford, hit by sinking sales in its home market and struggling to avoid the bankruptcy that would later engulf its Detroit rivals, General Motors and Chrysler, was selling off almost all its foreign assets. Jaguar was offered for sale with Land Rover, which had been bought by Ford from BMW in 2000.
Ford had made investments in Jaguar that were finally to pay-off, but as it had run out of money it had to sell it though there were many viable products in the pipeline. It was bought by TATA Motors in 2008; at the same time when financial crises hit and its sales fell sharply. TATA had to take loans in order to function and it also undertook the following measures leading to the immense boost in its sales;
• Tata has focused majorly on curbing its costs.
• It has been very decisive in choosing the management, but once in place, they leave them to deal on their own, unlike Ford. They are long-term, committed, and patient owners.
• When Tata bought JLR the new-product pipeline was stuffed with world-class new cars developed by JLR however invested in by Ford.
• The classy, fine-handling Jaguar XF saloon launched in 2007 saved the sales from freefalling in the financial crisis.
• Range Rover, Evoque, went on sale last year and has been an enormous hit, selling more cars in its first nine months than Jaguar had sold all year.
• Better exchange rates helped JLR as well, which relies on 80 per cent exports of its production.
• Undoubtedly the brightest influence on JLR’s recent success has been the insatiable demand for British luxury cars in China. In order to tap the Chinese market, JLR has basically used the concept of localization or fragmentation of market as mentioned earlier. High demand for cars having specialized options that can be utilized in accordance with the individual customers’ preferences (OLIVER, 2012).

GLOBALISATION OF THE AUTOMOTIVE INDUSTRY:
Globalization in the automotive industry has taken place due to the following factors:
• Potential market growth, low-cost, skilled labour in countries like Brazil, China and India and investment liberalization through World Trade Organization (WTO) agreements have attracted large FDI inflows to local markets then exported back to developed countries.
• Amplified outsourcing and the bundling of more value chain activities in supplier firms has led developed country suppliers to intensify their own involvement in FDI and trade while developing country suppliers have increased their capacity.
• The wave of mergers and acquisitions and equity-based alliances in the 1990s have widened the global scope of the firms and suppliers
• The final vehicle assembly, and by parts production, has largely been kept close to end markets because of political sensitivities and reduced cost backing up the process of globalization.
• There are few fully generic parts or subsystems that can be used in a wide variety of end products without customization; this creates the need for close collaboration, raises the costs for suppliers that serve multiple customers. (Sturgeon, 2009)
All of these factors have affected the UK automotive industry that has moved towards globalization, with the ‘old’ mature auto-manufacturing regions experiencing a painful adjustment such as plant closures in the UK; Jaguar and Peugeot-Citroen. The automotive industry in Europe concentrates on achieving cost reduction and innovations for environmental safety. As India, Russia and others are becoming exporting nations, the European automotive industry may struggle to survive with this strategy, until continued with non-price competition or stern environmental regulation. In spite of the industry’s long-term stress on cost reduction, without the sort of strategic repositioning attained by TATA with its Nano, ‘‘it is now clear that the industry has reached some fundamental limits within the existing business model and design philosophy’’. Accordingly, the European industry has been locked into a particular trajectory, and the Nano should motivate policy to identify alternative business models for the European automotive industry (Bailey, 2010).

CULTURAL AND ETHICAL ISSUES IN OVERSEAS PRODUCTION:
Following are some of the cultural and ethical issues a company might face in overseas production:
• Analysis of trends in the auto-industry stresses…