3 - Jacobs University
3 - Jacobs University
3 - Jacobs University
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developing markets (Figure 4).<br />
Due to the extreme geographic dispersion<br />
of final customers nowadays it is very important<br />
for the automotive producers to run global<br />
operations. Usually an automotive OEM would<br />
run a number of production facilities strategically<br />
located within or close to its most important<br />
markets, with the majority of its key suppliers<br />
situated in close proximity. This not only<br />
reduces the uncertainty of deliveries to OEMs’<br />
final customers, but also significantly reduces<br />
transportation costs (transportation of voluminous<br />
products such as automobiles on long distances<br />
is quite expensive). Therefore, carmakers’<br />
decisions on where to position their production<br />
facilities are governed by the development<br />
of global markets.<br />
Million Units<br />
20<br />
15<br />
10<br />
5<br />
0<br />
Growth of Automotive Production<br />
in Developing Countries<br />
USA<br />
China<br />
Eastern and Central Europe<br />
South America<br />
South Korea<br />
India<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005<br />
2006<br />
2007<br />
2008<br />
2009<br />
2010<br />
Figure 5: Growth of the automotive production<br />
in the developing countries<br />
(Data Source: OICA, 1997 – 2010).<br />
All these recent changes made today’s automotive<br />
business environment much more complex<br />
as compared to the one just a few decades ago. To defend their market positions major players<br />
need to adjust their strategies to the new market environment. On the one hand, market leaders<br />
need to defend their strong positions on the developed western markets and fend off new business<br />
rivals. Here competition does not come only from producers from other developed regions.<br />
Automotive players with recently gained momentum, such as the Korean Hyundai-Kia, currently<br />
the fourth largest automotive manufacturer worldwide, also strive to set strong foot on Western<br />
markets. Meanwhile, stagnant customer demand and limited sales in these markets exacerbate<br />
the price competition. On the other hand, automotive OEMs need to keep up with the headlong<br />
growth of developing markets and capture as large a market share as possible on these markets.<br />
Doing business in the newly opened regions in many cases can be particularly challenging due to<br />
specific governmental regulations which favor local producers. Thus for example in China foreign<br />
automotive manufacturers may only produce through local joint ventures with their participation<br />
limited to no more than 50 percent (Economist Intelligence Unit, 2011). Moreover, to develop key<br />
competences such as the production of smaller and cheaper cars, which correspond to the lower<br />
19