1. What are the basic attributes of the auto industry in the era of globalization; which dynamic changes in the industry influence companies’ strategies?
During the era of globalization, the auto industry, like many industries, saw an increase in marketplace growth. The case throws out a perplexing statistics that one in seven people own an automobile on a global basis, equating to roughly 900 million cars and light vehicles. The Exhibit 1 of the case points out that the compound annual growth rate (CAGR) of Global Automobile Value ($USD) from 2002 to 2006 grew at 4.7% and the CAGR of Global Automobile Volume (units) from 2002-2006 grew at 3.5%. The marketplace was strong and advancing. Exhibit 2 of the case validates our thinking that the U.S. marketplace is still the leading revenue-generating region with 38.1% of the global value; however, the Asia-Oceania has been the cause of much growth globally in recent years. Overall, the entire sector was estimated to be worth over $2 trillion or the equivalent to the United Kingdom’s GDP. This is a staggering amount, but even more staggering is that the top five auto makers represent about 50% of the global market.
After reading further into the case, the stronghold of top companies in the auto industry was justified by the significant capital that was required to enter the industry. The cost of a new model car was estimated at $1-2 billion and a 3-5 year timeframe for development. Of the same importance as capital were the relationships that firms must build. It requires roughly 15,000 parts per vehicle, which equates to about 70% of the wholesale cost. A typical firm would source supplies from 30 direct suppliers and 70 indirect suppliers.
As with the ever changing environment around us, the auto industry was motivated to adjust its strategies and internationalize. Some of the motivators we discussed in class that apply to this case are secure key suppliers, access to low...