Globalization In The Automotive Industry

globalisation In The self-propelling IndustryGlobalization is 1 of the or so contr altogether oversial phenomenons of the modern trading sector human being. Today, the world map distillery includes the discipline b gives however interior(a) b ranges down just stayed in rig of magnitude to signify the political lines.Except politics, national b installs gravel eroded in the midst of countries. In business life from make up to marketing, from economics to technology, a great degree of globalisation is undergo. However, in coordinate to make sound analysis about globalization, first of wholly, it is crucial to stipulate what globalization is. at that place be numerous un desire definitions in the publications but one of them uses a humorous manner in order to define globalization through an event we all know well. match to this short story, globalization is the situation in the death of Princess Diana. It is so be puddle an fount of meat princess with an Egy ptian boyfri end crashes in a French tunnel, driving a German car with a Dutch engine, driven by a Belgian who was drunk on Scottish whisky, followed closely by Italian Paparazzi, on Japanese force backcycles treated by an Ameri tin doctor, using Brazilian medicines. (http//www.nowcwc.com/activities/globalization.htm) The story is very impressively pointing out the event that todays life has become globalized rather than being national.In literature, many authors from all nearly the world with diverse backgrounds and diverse disciplines book studied about globalization and time-tested to define it from variant positions. Globalization, in its contemporary meaning, has emerged in after eighties despite the circumstance that it was employ primitively before in various meanings. The famous Ameri enkindle sociologist, Saskia Sassen, who has been noted for her studies on globalization, has defined it as a variety of micro- carry throughes that argon denationalizing all that h as previously been constructed as national. (Sassen, 2006)Further more(prenominal) than than than, United Nations economical and Social Commission allow asserted that in the context of economics, globalization refers to the reduction or elimination of the barriers and borders surrounded by the nations and countries in order to despatch the free flow ofGoods and piece of workCapitalLabourTechnology contempt the stronger globalization for the goods services and the capital, there support still been barriers for the flow of dig out because of the imperfect mobility due to its nature. However, it is never attainable to have perfect mobility for labour. (UNESC, 2002) opposite author, Thomas Friedman, has defined the situation in todays world as the flattening of the world. He asserts that the changes in trade, outsourcing, and supply chain and even in politics that we all name as globalization have changed the world permanently and that the one thousand of globalization is accelerating. (Friedman, 2008)The emergence of globalization dates back to 80s. In the past 30 years, the changes in science and technology have brought up globalization. Flow of goods, services and capital is the key for globalization and this has been enabled by the virtue of technological advances and their exertion in two(prenominal) business life and daily life. Advances in the telecom have first of all permitted the flow of information across faraway distances. Advances in computer technologies and the rise of Internet have led to the digitalization of business. It has precisely, by these advances, been possible to move to a globalized economy all over the world.As a resolving power of these advances, global companies have emerged. For pillow slip absquatulate is a global organization with offices and locations in 160 protestent countries and 54.700 employees. polar offices in 160 different countries be connected to from each one other(prenominal)(prenominal) and by the virtue of the technological advances 54.000 employees in 160 countries brush off work in harmony. (www.xerox.com) As another example, Ford Motor Company is a global company with mental processs in North America, in the south America, atomic add 63, Asia / Pacific and Africa. Ford manu accompanimentures cars and trucks in more than 100 plants throughout the world. (www.ford.com) As an example from financial sector, HSBC bank, the worlds largest bank, operate in 86 countries from United States to Hong Kong and Kuwait, from Mexico to France and Brazil. Furthermore, the grants of HSBC Holding argon have by 220.000 sh atomic number 18holders from 119 different countries. (www.hsbc.com)As it croup be seen, the degree of globalization for a company may differ. One company may only have sales and distribution trading trading operations in abroad countries. other may too have action capacities in different countries but is managed by only topical anesthetic executi ves. (Robert, 2004) Analyzing globalization becomes more meaningful as long as the analysis is conducted within a specific application because the dynamics of different industries may require different degrees of integration among its worldwide operations. (KPMG Global machine Executives Survey, 2008)This tale is aimed to analyze the self-propelling attention from the perspective of globalization. self-propelled application is a very distinct constancy with many global players and a cut throat competition. The report, firstly, tries to examine whether the self-propelling labor and its players operate in a single global market or not. In order to do this, it is crucial to define what is meant by a single global market and what indicators could be used to measure the utter close of globalization. Furthermore, these indicators argon to be utilise to the self-propelling application where international entropy is available. Secondly, the particularors that have con tributed to the globalization for the self-propelled industry are to be analyzed. It is measurable to successfully define these factors and furthermore evaluate their importance. Lastly, the impact of globalization on takes of trade and employment is to be stated in the United States. To do this, national and international statistics on trade and employment are to be utilized.Before movement to the report, it would be useful to depict a true picture of the automotive industry in general, in order to be able to set the frame and background of the analysis.Automotive IndustryAutomotive is a very broad industry with very different operation areas. The industry covers operations equivalent normal, sales, after- sales aver, spare parts and marketing. This makes it ticklish to differentiate these different operations just by naming the as automotive industry. However, the core operation areas in the automotive industry can be summarized as followsDesign of the vehicleEngineering of the designed vehicleProduction and manufacturing of the vehicleMarketing and communication of the brandSales operations through the retailerAfter sales and spare parts die hardAnother significant classification emerges amidst the different harvest-tide types of the vehicles. This depends on the primary usage aim and the size of the vehicle. So, motor vehicles can be classified in the spare-time activity categoriesAutomobiles or passenger carsLCVsTrucksBusesLight Vehicles (without commercial message usage)Commercial Vehicles (McKinsey Quarterly, 2006)In line with this classification of the product types, perfect publication of manufacturing for motor vehicles in 2007 makes up a total of 73 meg units. When compared with 2006, the profit is calculated to be 5,4%. Total production in 2006 was 69,3 one thousand one thousand thousand units. But 2008 witnesses a rather sharp pass in motor vehicle production. After 73 million units of 2007, total production in 2008 emerged t o be 70,5 million units. (KPMG Global Auto Executive Survey, 2008) This is principal(prenominal)ly caused by the effects of the global financial crisis that assumeed many parts of the world. many another(prenominal) automakers faced serious financial problems in 2008 and more or less of them even experienced the risk of bankruptcy. Governments prepared support plans for the local automakers of their countries and some merger and attainment operations are seen in the industry.As it can be seen from the tabulate, the biggest region of production is done in Asia and Oceania which can primary(prenominal)ly be attributed to the fact that production speak tos are con berthrably lower in these regions. Furthermore, the local governments in these regions in like manner support the investment plans of the automakers by some incentives and options.When production in 2008 is analyzed country by country, it is seen that star automakers are Japan, China, Germany, the States and S. Kor ea. (GLG Expert Contributor, 2009) Developed economies of the world have lost production in 2008 compared with 2007. It was also seen in the general production throughout the world. However, it was also great that emerge countries had growths in their 2008 productions. These countries can be exemplified as Brazil, Russia, China, bomb calorimeter, India and Mexico. (www.oica.net)It is an interesting fact that despite the take in of the automotive industry in America by Ford Motor Company, today most of the production has shifted to the Asian countries. The main reason for this change is that Asian countries offer cost advantages in production. qualification production in these countries affect the financial performance of the automakers and produce merchantman line results. (Keller, 2003) This way automakers gain financial advantage whereas the Asian governments get out foreign direct investment and they have employment opportunities for their citizens. (Keller, 2003) They al so support this situation by tax exemption and tariffs.The point is that since automotive is a huge industry, there also exists a competition between the governments in order to have production facilities and plants in their countries. It is for sure that the competition between companies is much more approximative compared with the competition between countries. Globalization is a very of import aspect in this situation. Companies try to reach for economies of outperform in order to gain financial advantages and they gain their production and these forces the companies for mergers and acquisitions. So, an important result of globalization in the industry is consolidation which is forecasted to increase in the future periods. (www.pwc.com automotive industry Analysis)Utilization rates are also important in the industry. In general, physical exercise rates are down the stairs 80% for the automakers which center idle production facilities. (Sturgeon Lester, 2004) Companies try to increase their utilization rates but this fact results in excess capacity when they are unable to sell the vehicles and turn it into cash. In order to sell more, companies go for price disregards and lose profitability. So overcapacity in the industry and the competition cause a price war.Price war is reflected in various forms. It can be either in terms of sales price discount or incentives and promotions to the customer. The total amount of givebacks offerd to the customers is guessed to be around USD 45 million for 2007. (Pwc Report) This situation is a reality of the industry regardless of the region.Without the exceptions like a global financial crisis, the growth rate for the automotive industry is forecasted to be around 10 million units for the next 8-10 years. Even these growth rates will not heal the capacity utilization problem in the industry. The utilization rate is expected to rise to a maximum of 85% which is still low for much(prenominal) an investment intens ive industry. (KPMG Global Auto Executives Report, 2008) This is one of the most serious problems that the future of the industry faces and subscribe tos to set about with.Another problematic view of the industry is the suppliers. Suppliers are having pressure from the automakers both(prenominal) in order to keep down costs and prices and they are both expected to make creation. For product differentiation and facing the changing take ins of the customers, suppliers are very crucial to make innovations. It is only by this way possible for automakers to address the demands of the customers and the market. (Sturgeon Florida, 2000)The automotive industry is also stretched by the rules and regulations they face from both local and international institutions. Many of these regulations are related with financial issues or social issues like environment protection. Some of much(prenominal) regulations are as followsIFRSBlock Exemption Regulation (BER)Sarbanes OxleyEnd-of-Life Vehic le Regulation (ELV)EU admission chargeCO2 emissions RegulationsThese are the key issues regarding the automotive industry and I recollect that they are crucial to understand the industry dynamics before proceeding to its relationship with globalization.Globalization in Automotive IndustryGlobalization is not a new concept for the automotive industry. When the history of the industry is studied, it is seen that automotive industry has began globalization by the start of mass production. Total different number of countries that Ford and normal Motors were assembling vehicles was already 24, even as early as of 1928. These countries that Ford and GM were operating were spreading around a huge geography from Japan to Brazil and India. By the end of 1930s, both of these American automakers had plant facilities even in Europe. By 1950s, European automakers were financially recovered from the negative effects of the World War 2 and Europeans started to invest in Australia, Latin America and South Africa. By the exacerbate of communism in the Soviet Russia and the end of the glacial War, new markets were capable to the automotive industry like Eastern Europe, India and China. 1990s witnessed the efforts of the automakers to harmonize their operations on a global scale especially in design and manufacturing. The timeline in the history already shows that globalization has always been in the tint of the automotive industry one way or another. (Sturgeon Florida, 2000)When the production in 1975 is compared with the production in 2005, a striking effect of globalization is visible. In 1975, the number of different countries that make up 80% of the total automotive production was 7, however when we came to 2005, the number of countries that make up the 80% of the total automotive production had risen to 11 with the dispersion of geography for the automotive industry. (Sturgeon, 2009)The entry barriers in the industry are very high. This is the reason of such a cons olidation as depicted above. The design and development process for a new vehicle is very costly and it takes 3 to 5 years and billions of dollars to complete a project. In such an environment, the competition is fierce and innovation is a key element that automakers convey to possess. By the advances in computer and communication technologies, the need for innovation is crucial. The automotive industry is still in a growth trend. When we look at the overall numbers for vehicle ownership, we see that only 12 % of the total population in the world has automotive products. The industry grows about 20% in each decade except the times of economic crisis.The total demand in 2010 is forecasted to be around 65 70 million units of vehicle and the lead story countries in this expansion would be both developed countries and both emerging economies like BRIC countries. (Brazil, Russia, India, China) The rise of BRIC countries is a very important reflection of globalization in the automotiv e industry. As of today, the share of these countries in the total annual sales is not very high but in one or two decades, the global picture is expected to change. Especially, China is forecasted to government note for a very large share in the increasing demand of the emerging economies, this is the reason why companies like General Motors has been aggressively on the romp(p) in Chinese market. (Hsu, 2002)In order to analyze the globalization in automotive industry by its todays context first of all we need to understand the current changes in the industry and the effects of globalization in these changes and the reflections in the academic literature about the automotive industry. According to Sturgeon and Florida (2000), globalization is shifting the economic geography of the automotive industry. The industry with all its side industries from spare parts and OEM to electronics is affected by a new ripple of assembly and plant constructions among different places of the wor ld. According to this new wave, China, India, Thailand, Vietnam, Brazil, Mexico and East Europe are new locations for assembly and supplier plant constructions. The reasons pushing these developments can be listed as followsCompetition is fierce at home markets and as a result of the competition market saturation is reached in many local developed markets.As a result of the end of the Cold War, new investment opportunities have arisen in the countries that are stated above.There are host country requirements for local production which squeeze the automakers.Automakers are trying to benefit from regional trade arrangements. Some familiar examples are NAFTA and EU. These trade agreements provide some opportunities to automakers in order to make cost cuts. (Sturgeon Florida, 2000)The effect of trade agreements is rather important in the industry and it is the newer side of globalization that is experienced in the automotive industry. It had started with the Japanese automakers effort s that resulted in intense competition in the United States and in Europe. Against Japan automakers, Europeans and Americans focused on their cost structure and well-tried to reduce their running(a) costs. Through regional strategies of moving production to low cost countries, automakers of Europe and the United States tried to gain cost advantage against the Japanese. Those low cost countries were especially Canada, Mexico and Spain in the 1980s. (Keller, 2003)Globalization in the automotive industry is also experienced in manufacturing. Vehicles are generally designed with common under-body platforms but then they are modified in specific characteristics according to the local needs and conditions. as well through the inclination to global vehicle body platforms, the assembly capacities and skills can be designed more generic or in other words global. This way assembly and manufacturing become less model-specific.Another important issue in the automotive industry is that automa kers forever try to decrease the minimum scale of assembly plants because they have a risk in such emerging market investments since these markets are vulnerable and they possess more risk due to a possible uncertainty compared to developed markets. Thus, automakers extend on to decrease the initial risk they incur on such investments. They try to launch relatively smaller but flexible plants and these plants are designed as expandable in case it is needed. Automakers furthermore share large investments with other automakers who would also like to benefit from the assembly plant. (Sturgeon Florida, 2000)Globalization is also experienced through its impact on the structure of the automotive industry. As a result of the globalization in the industry, the relationship between the automakers and suppliers is changing. This change is much distinct for the first tier suppliers who, day by day, play more importance in the industry. This has also led to the fact that anymore global supp liers have emerged in the automotive industry. These global suppliers have a superb capacity of sourcing components on a global level in different parts of the world, simultaneously and in coherence. So, this both mean geographic expansion for the global scale suppliers but it also means a consolidation in the industry as these global suppliers start to reach economies of scale and work with maximum efficiency and minimum costs. It is so striking that for the future of the automotive industry, such global suppliers may be more effective in the automotive industrys future investments. Being more effective in the investments also mean that suppliers will be more and more enjoying the benefits of such investments, either social or economical like employment. It can be asserted that as a result of globalization, the baron of the suppliers versus automakers is increasing. This is the most important effect of globalization on the automotive industry and it has led to the rise of supplie rs like Bosch, TRW, Magna and Valeo. (Sturgeon Florida, 2000)Sturgeon, T., Memedovic, O., Biesebroeck, J.V., Gereffi, G. (2009) have also studied on globalization of the automotive industry with its main features and the prevailing trends. The authors also presume the boom in the developing markets and emerging economies but they also mark on the fact that developed markets still have importance in the automotive industry. In operational levels, regional integrations play an important berth but also global value chain links have been created in the industry.Another sign of the globalization on the automotive industry is seen in the change in the dividing line market both in terms of quality of the jobs and the necessary characteristics and both in terms of the number of jobs available in the market. According to the analysis of Sturgeon and Florida (2000), automotive industry has added 103.000 jobs to the job market just between 1993 and 1996. However, later as the globalizatio n started to affect the automotive industry, the job structure has shifted from the automakers to suppliers and this has also affected the pay levels since the pay was lower in the supplier side compared to the automakers. (Keller, 2003)The change in the job market has also been seen through the shift of locations from developed countries to emerging economies like Russia, Mexico, Brazil, India and China. So, it can easily be concluded that job opportunities of the United States and north-west Europe have gone to other parts of the world. A reposeful factor for this issue could be seen as the fact that still some important parts and components are manufactured in the traditional centers of the automotive industry like the United States and Europe. (Keller, 2003)As production and assembly facilities have shifted from United States and Europe to low cost countries, these traditional centers that have stayed expensive for production have taken more responsibility in other functions l ike design, research and development and engineering.Another important aspect of globalization in automotive industry is the sharing of technology and know-how. As a result of the competition, innovation has been a key issue in order to sustain competitive advantage in the market for all industries. This need of innovation is far more important in the automotive industry because the needs and demands of customer segments are constantly changing and evolving. In order to tuck changing customer needs, automakers have to innovate new product features that are in line with customer needs. One aspect of innovation in the context of globalization is seen in the design and manufacturing. Generally main body parts of the vehicles are designed globally and are used in all different models. Besides, manufacturing processes are planned globally and applied in all different plants.However, another important aspect is reasoned for recruitment in order to attract talent. In order to meet the ne ed for advanced technology, companies need to attract and recruit most proficient employees wherever he / she reside and whatever nationality he / she are in. For example, General Motors recruits engineers and scientists from a very diverse range of countries and nationalities like from North and South America, Europe, the Middle East, China, Taiwan, India, and Korea. The variety in the backgrounds of the employees makes a leveraging effect in order to create new ideas and perspectives for the company. This is an essential part of the business in order to create competitive advantage through the use of innovation. So, a very important benefit of globalization is the ability to have entrance money to technology and the employees who know and use these technologies.It is also valuable to compare the automotive industry with other global industries like electronics or consumer goods. One of the most important common features between these industries and automotive is that there has b een tremendous increase in global production, cross-border trade between the countries and foreign direct investment. These increases have especially intensified after the 1980s up to today and the dance step of increase is accelerating. (Sturgeon, T., Memedovic, O., Biesebroeck, J.V., Gereffi, G, 2009)Another important common feature between all these globalized industries is that the level of outsourcing is increasing in the industry and more and more operational work is transferred to the supplier firms. The fact that suppliers became global which we have addressed previously is thus valid for many other globalized industries. (Sturgeon Lester, 2004)However, automotive industry is different for some of its distinct characteristics. First of all, the automotive industry is very concentrated. precise strong small numbers of firms are very powerful against a huge number of smaller firms. Three countries Japan, Germany and the United States are the leading countries and a total of 11 firms from these 3 countries are the most effective companies of the automotive industry. This was especially shaped by the mergers and acquisitions that took place in 1990s.Secondly, another important characteristic of the automotive industry is seen in its proximity between the manufacturing and the sales. Production is generally done close to the market and the notion of plant where you sell is very important. (Sturgeon Florida, 2000)Thirdly, regional integration as stated earlier in this report is much more common in the automotive industry compared with other globalized industries. In automotive industry, regional integration is seen side by side with the global integration and this is a differing side of the automotive industry compared with for example electronics where only global integration is seen.Lastly, it must be noted that in the global automotive industry there is a lack of standardization in the parts and components whereas in electronics for example processor s are nearly virtually usable in all kinds of computers but the automotive industry lacks such industry standards.We have focused heavily on the globalization of the automotive industry from different aspects and identified the indicators of globalization in the industry and the causal links between these indicators and the design of globalization. However, in order to be able to draw a complete picture of globalization, we also need to study the national and local elements of the automotive industry.There are many elements of the automotive industry that still retain as national or local. Consumer preferences, the income levels, driving conditions in the highways, regulations regarding the job market in the local countries and public policies like taxation all are subject to differ in different countries. These attributes have thus stayed national despite the fact that they have great effect on the automotive industry. (Sturgeon Florida, 2000)As a specific case, I would like anal yze the Turkish automotive market as an emerging market. Turkey is one of the top-20 countries that manufacture automobiles and commercial vehicle. The following table shows the automotive production in Turkey for the years 2005 to 2008. As of 2008, the total automotive production in Turkey is 1.147.110 units. (Findikcioglu, Yildirim, Senol, 2008) When the past data for the previous 4 years is analyzed, it is seen that there is a constant increase in Turkish production in the automotive industry.Source Findikcioglu, Yildirim, Senol, 2008The increase from 2007 to 2008 is 4% for the Turkish automotive production. The capacity utilization ratio was 78% and Renault was the largest manufacturer by 286.995 units. (Findikcioglu, Yildirim, Senol, 2008)Source Findikcioglu, Yildirim, Senol, 2008Despite the increase in production, automotive sales decreased in 2008 in the Turkish market. This is affected from the recessive environment due to the reflections of the global financial crisis and as a result of the two forces of sales decrease and production increase, inventory levels increased in Turkey. 2009 was thus a year with high stock levels, however, the government punish a rescue program and decreased the taxes on automotive until kinsfolk 2009 and this way, and automakers could close the year 2009 with higher sales and lower inventories. (Findikcioglu, Yildirim, Senol, 2008)Source Findikcioglu, Yildirim, Senol, 2008The most important indicator concerning the effects and extent of globalization in the automotive industry in Turkey is the number of exports. Turkeys automotive exports have been constantly increasing since 2005 and as of the end of 2008, total automotive exports of Turkey is 910.270 units with an 11% growth compared with 2007. Renault and Ford Turkey were the leader auto exporter in 2008. This shows the integration of Turkish automotive industry with the global automakers industry which can be seen as an indicator for the extent of globalization in Turkey. (Findikcioglu, Yildirim, Senol, 2008)Source Findikcioglu, Yildirim, Senol, 2008The table shows the consolidated results for production, retail sales, domestic factory sales, exports and capacity utilization ratios for the previous 4 years. (Findikcioglu, Yildirim, Senol, 2008)Source Findikcioglu, Yildirim, Senol, 2008When we look at the sales in Turkey, more than half of the automotive sales are imports. In 2008, total automotive sales are 526.544 whereas the share of local brands is 41.8% and the share of imports is 58.2%. (Findikcioglu, G., Yildirim, B., Senol, B.G., 2008) This is also another indicator of the effect of globalization. However, Turkish automotive industry is weaker in suppliers side. Turkey does not have a global supplier brand. (Teker Felekoglu, 2008)ConclusionThis report has aimed to analyze the globalization in the automotive industry and has tried to provide answers to the questions stated in the Post Module Assignment of the Global origin Environment lecture. To sum up, it can be concluded that automotive is an industry that is highly affected by globalization from various aspects. The degree and extent of globalization is different among different countries, however, when considered as a whole, automotive is a globalized industry. Globalization has affected the automotive industry in various business areas from design to manufacturing and from recruitment to investments. Business professionals need to understand the dynamics of globalization in the industry and need to develop appropriate strategies in order to survive in the competitive market.