Posted: July 4th, 2015

The global car industry is highly complex and has undergone a number of strategic developments in recent decades.

Case study notes for Business Strategy Exam August 2015.

Important: These notes must be handed in with your answer booklet.

The global car industry is highly complex and has undergone a number of strategic developments in recent decades.

European car sales fell by 8% in 2012, although expansion of demand for well known brands in China and other markets has meant that exports have risen for the United Kingdom in the same period. However, more recently, manufacturers are reporting an upturn in demand. Growth in demand in India and China was as high as 20% or 30% per annum in the early part of the 21^st century. However, despite this growth, the global car industry has seen a period of consolidation in the last 25 years, driven by the need for economies of scale and the increasing globalization of markets and supply chains. This consolidation has occurred through a number of methods of strategic development including mergers, acquisitions and strategic alliances. For example, in 1999 Renault and Nissan began an alliance based on the acquisition of Nissan shares by Renault. The brand identities remained, but scale of production and market reach was successfully achieved. A less successful development was the merger of Daimler and Chrysler in 1998. On paper this should have achieved a number of strategic aims, but the results were disappointing as the culture of the two firms was too different, resulting in the sale of Chrysler in 2007. More recently Ford also sold Volvo to Geely, but government regulation in China meant that a simple sale was complicated and had to be achieved through the setting up of a joint venture. Other joint ventures have been used in the car industry to share development costs of platforms for new cars, for example.

Despite the need for scale, like most other industries, global car firms also rely on innovation to sustain competitive advantage. The creation and implementation of new knowledge is crucial for innovation. The industry is hugely diverse and therefore many types of knowledge are relevant to this industry. This will include strategic knowledge of the type needed to enable the kind of developments described above – knowledge of market demand and the activities of competitors. More detailed knowledge of technologies of production, design, development and fuel are also central. Toyota, for example derived major competitive advantage from developing knowledge on lean production. More tacit knowledge of, for example, car design is also important for engaging customers in car brands. The exchange of knowledge in supply chains is a feature of the car industry and this implies that both information technologies and human relationships have to work effectively to share and implement this knowledge. Processes of knowledge creation, sharing and implementation of knowledge are therefore varied in this industry, but extremely important.

The scale of the global automotive industry means that (like many other firms) they potentially have a negative impact on the societies and environments in which they operate, despite the economic advantages they can bring. Most large firms will practice and publicise some form of corporate social responsibility (CSR) to try and address this impact. The scope of this activity will vary and the question remains over the extent to which CSR is used for strategic advantage rather than for ethical reasons. For example, BMW claim that they integrate sustainability and concern for the common good into their value system, but are open about the fact that this adds value for their company. They divide their CSR into six main areas of activity, from environment through to impact on employees and society, for example. Nissan, on the other hand focuses closely on environmental initiatives, despite claiming that their CSR addresses all stakeholders. They did not begin to consider CSR until 2004. Ford uses different language to ‘CSR’, describing their approach firstly as ‘corporate citizenship’, and since 2007 as ‘corporate sustainability’. This arguably allows them to focus on the economic sustainability of Ford through their broad range of environmental and societal activities, as well as being able to claim to be good citizens. For example, being a global company with a complex value system and supply chain, they include human rights issues among their areas of attention to CSR related activities.