The automobile industry includes a huge number of
manufacturers, companies involve in the process of research & development,
designing, producing, testing, marketing, and trading of
automobile. Globally, there were about 1015 million vehicles in 2016. The
automobile plays an important role in transportation department for many
countries around the world. This industry is one of biggest economic
sectors in term of revenue.
Customer’s preference for automobile is vary from each city, each
nation. Nowadays, it is such a diversity of vehicle on the global auto market
now. Despite the globalization trend, in EU, Japan and North America markets,
there are clearly distinctive preferences for automotive. The auto companies
need to adjust their vehicles for adaption in particular countries.
For example, while automobile’s preference of European and Asian
are quite similar, the car taste in North America is clearly distinctive. Fuel
consumption and size are one the main criteria of buyer. The fact is that the
vehicles in the US market always have exterior dimension and fuel-consuming
rate that never can sell in EU. Moreover, due to difference in reference, diesel
vehicles rarely are sold in some particular regions such as Asian and North
America. The difference in chassis structure of the vehicle in some specific
markets is also depended on road, weather conditions in those countries. For
example: Mercedes-Benz only provides the long-wheelbase form of their luxury
flagship S Class in some specific regions.
Culture and Global customers
Clearly, one of the main problems in global strategy of car
manufacturers is the difference in culture. One clear instance is the story of
Chevrolet Nova model. From 1985 to 1988 Chevrolet introduced the Nova model in
Latin-America market. With lacking of culture research, customer in Latin
America rejected that model. Simply because the word “Nova” in Spanish means ”
Does not go”.
Besides, there are also many global groups of customer have the
same taste in automobile from different countries. Some groups from specific countries
such as China, Vietnam only choose their vehicle by the brand name, exterior
design, and colors. Other groups from EU, The US for example, only focus on the
technical, safety standpoints, and performance of the vehicle.
Low Trade barriers and Scale opportunity:
The clear example for low trade barriers in this industry is the governmental
programs that aim to support the auto industry in global trade. The significant
global programs are Asia-Pacific-Economic-Cooperation (APEC) and Automotive-Dialogue
(AD) that effort to create agreements to encourage the integration and
development of the automobile industry in a nation by simplifying procedure, and
lowering tariff barriers, import, and export taxes. Automotive Dialogue program
supports and encourages sharing goods, exchanging information about policies,
technical standards among countries. Now APEC and AD have 21 members including The
US, China, Japan, Russia, Canada, Indonesia, Vietnam, etc.
The number of new emerging markets around the world increased
rapidly nowadays. In the developing markets such as Vietnam, Thailand,
Indonesia, Philippine the barrier to entry the industry is low, regulations are
more flexible, labor, transportation, administration expenses are low.
Therefore, the potential for economically scaling in the new markets is
Standards and Regulation:
The key reason you have not seen some vehicle models in some
countries is because of government policies. For example The US has dissimilar viewpoints
on car safety standards and emission control law than the countries in Europe. This
is one of the key reasons why many vehicle models are not qualified to achieve
the permit to get into some markets. In many nations, vehicles are manufactured,
and tested base on the global standards. For example the UNECE (United-Nations-Economic-Commission-for-Europe)
is applied for car manufacturers in many countries around the world. However, America
has a different safety standard perspective, which is the
Federal-Motor-Vehicle-Safety-Standards. Canada also has distinguished standard
called Canadian-Motor-Vehicle-Safety-Standards. Moreover, if a firm wants to
provide a particular car model internationally, they must build 3 different versions:
left hand, right hand drive version, and America-Canada version. This will
increase the manufacturing expenses; therefore, the price for car probably higher.
To sell vehicles
in the foreign markets, the manufacturers must spend a lot of time and money on
costly authorization procedure. However, the different standards and policies
among some countries such as The US and China can make the procedure more
complicated and sometime useless. Normally, the differences in regulations and
standards in the industry create a barrier for global strategy of the firms. However,
that barrier often stimulates the domestic market. Making the procedure more complicated,
and costly for imported vehicles may increase the price of those vehicles. This
absolutely leads the domestic brands more affordable and competitive than other
foreign brands. The more people accept domestic manufactured automobile, the
stronger domestic economy.
Industry Structure and Protection
Unlike in the North America, where most people like driving big
size, high horsepower engine vehicles, European prefer to use smaller size cars
with manual transmission and diesel engine. The main reasons for that are not
only the differences in culture but also the differences in industry structure.
The key difference between EU and the US industry structure is the infrastructure
landscape. Cities, in EU, for example Paris, Rome are smaller in size. Street
is also narrower and there are not enough parking spaces for large size
smaller vehicles are so popular in EU and some small countries around the
Americans like traveling by the road trip more than Europeans, which is nearly
300 hours/year. There are also better public transportation systems and many
other options for using car in EU. Therefore, the car-using rate in EU is way
lower than North America. Another main reason need to be mentioned is the price
of gas and diesel in EU. Due to the higher price of petroleum, Europeans often
prefer to eco-friendly vehicles than big size vehicles with super strong
around the world have introduced new regulations to protect their domestic
industries by imposing import taxes, tariffs, and quotas to restrict the importation.
A specific example is that, about 20 years ago, China government introduced a
new regulation which are higher import tax rate, and importation restriction on
car industry that encourages, supports the domestic manufacturers to use their
technology to assemble vehicles instead of using imported vehicle parts from
other countries for manufacturing. The regulation effectively prevents the
competition from the huge foreign manufacturers. However, after joining to WTO
in 2001, China had to change its policies to provide foreign car manufacturers
higher access into Chinese market. In 2004 the Chinese government implements
reducing tariffs, relaxing import restriction. In 2006, the import tax rate in
Chinese automobile industry was decreased by 25%. Simplifying regulations on automobile
investment created a wide entry for domestic firms as well as global companies
to jump into the industry. The number of domestic firm in the industry increased
from 127 in 1999 to 144 in 2004. The number of foreign affiliated manufacturer
also rose rapidly from 26 to 49 in that period.
industry is neither a completely global industry nor domestic industry, which
depends only in specific countries or localities. I think the automobile
industry is still in the middle of globalization process. Globalization in this
industry has applied at the stages of designing and developing, because
manufacturers need to recruit engineering contribution around the world.
There are still
many auto manufacturers is applying multi-domestic strategy for their long-term
plan. Combining multi-domestic and global strategy is one of the popular developing
strategies auto manufacturers applied to be successful in different countries.
The manufacturers never provide the 100% similar car models in foreign markets.
They also infrequently create new models from scratch. Normally, they
manufacture only one platform for one model. Then, make some minor adjustments;
add different technical features, and provide a list of options depend on the
preference, and demand of customer from the countries they are approaching. In
some markets, they might change quite differently the exterior, interior, paint
color, quality of material, engine, and so on to meet the specific needs.