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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

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