The Impact Of Globalization On Business Enterprises

Running head: THE IMPACT OF GLOBALIZATION ON BUSINESS ENTERPRISES

The Impact of Globalization on Business Enterprises

Instructer: Khalid Abdalla

University of Phoenix

MBA/501 Ð'- Forces influencing Business in the 21st Century

Week 4 Ð'- March 12, 2006

Introduction

The global automotive industry is in a continuous state of change with respect to technology and ownership. The American producers, once the envy of the rest of the industry are struggling while two Japanese firms and several European manufacturers are flourishing. At home, in North America, they are losing market share, especially to Toyota and Honda. Recently Ford Motor lost as much as Honda earned in a record setting quarter. How did some of the Japanese firms become so successful?

Problem Statement

The dominant position in the North American market of the "Big Three", (GM, Ford and Chrysler), was permanently altered in the 1980s. The oil crises of 1972/73 and 79/80 helped pave the way for the Japanese to penetrate the American market, making their smaller, more fuel-efficient cars an attractive alternative to the gas-guzzling offerings of the Big 3. As the US government reacted with protectionist measures in the 1980s, namely, a voluntary export restraint negotiated with Japan in 1981, the Japanese turned to importing fewer cars, but at higher price and quality levels. In order to increase sales above quota-restricted levels, the Japanese then setup US manufacturing bases, termed transplants, beginning with Honda's Ohio plant in 1982 (Smitka, 1999). These transplants solidified the Japanese presence in the North American market.

Opportunities

Although the globalization of the automotive industry may not be a unique phenomenon, the intensity of inter-corporate linkages present within the automotive sector appears to stand alone in terms of sheer scope and complexity. As the global automotive industry matures and competition intensifies within traditional markets, it has become necessary for established companies to branch out to pursue emerging markets, and develop new niche segments. This has in turn spurred on changing relationship structures, with an apparent realization by many that alliances of differing sorts may be necessary to compete effectively, allowing fierce competition to coexist alongside cooperation that does not violate anti-trust legislation. This "co-opetition" has become the rule rather than the exception, as the web of interdependence among manufacturers, and suppliers, has grown denser over the past decade. The key to attaining diversification across markets on a global level is the ability to offer appropriate products to appropriate regions. This has been a difficult concept for the US manufacturers to accept, as they have historically served a large enough domestic market to remain indifferent to external tastes and needs, with their European divisions highly insulated and independent of North American operations. The formation of partnerships with firms that serve foreign markets may be an effective way to cross this hurdle. DaimlerChrysler, despite their strength in Western markets, have little presence in developing markets without their equity partners, Mitsubishi Motors and Hyundai. Their equity stake in Mitsubishi provides DaimlerChrysler access to Asia/Pacific, the world's fastest-growing market, while Hyundai is a dominant player in the fast growing Korean market. In its goal of enhancing sales in Asia, DaimlerChrysler has increased their stake in Mitsubishi Motors truck division (Miller and Welch, 2002). GM "recognizes that its (own) brands don't attract much attention in many Eastern markets, fueling GM's strategy of forming alliances" [Priddel, 2002, p. 44). GM and Toyota will soon be selling Toyota-badged vehicles in Japan originating from the NUMMI joint venture with GM in California. Recently, GM injected more cash into Isuzu in return for a controlling interest of the firm's truck division, where Isuzu is expanding production (Yamaguchi, 2002).

One trend that is destined to continue is the movement of manufacturing bases out of traditional economies and into less developed countries. Typically, these areas consist of labor forces that are open to flexible