TRIUM GLobal EMBA - Module 1 – Group Essay
What are the Main Risks Posed by Globalization to the Automotive Industry?
How Can These Risks be Managed and Mitigated?
LSE ID numbers : 200933569, (add everyone else’s ID number per essay instructions)
The auto industry has significantly benefitedsignificant benefits from globalization. The industry has evolved from being a local-market-focused business comprised of hundreds of small manufacturers to a global market-focused business dominated by Japanese, German, South Korean, and American producers generating over 1.7 trillion dollars US in sales. This essay discusses what we believe are the main risks posed by ...view middle of the document...
It also offers actions the industry can to manage mitigate these risks going forward.
Although we have chosen to concentrate on these three risks, we understand that other risks exist that could influence the future of the automotive industry. Walter McManus, for example, makes an especially strong point regarding the correlation between oil prices and car sales and how Detroit’s largest car makers failed to heed the warnings of economic reasoning (McManus, 2007, pp 53-60). Copeland and Hall, in their 2005 paper, also discuss how unforeseen shocks, such as the terrorist attacks of 9/11 can influence demand in the short term and how auto-makers have the necessary tools to overcome these events and level out the price shocks over time (Copeland & Hall, 2005). This essay also does not explore the risk of global warming and its implications for product design. While other effects, such as political instability, or currency risks are very briefly touched upon, it is our belief that the three risks we have chosen to provideoutlined are the more likely relevant risks the automotive industry must address to further realize the benefits of globalizationensure global sustainability.
The automobile industry has matured over the past century, evolving from a domestic business model where carmakers produced for local markets, to a global model beginning
iIn the early 1980’s where car Production has become transnational, thus providing carmakers access to consumers around the globe. This growth has provided consumers more choice, reduced product cost and price, and increased fostered innovation in response to greater competition.
Protectionism, defined as is the ability of nations to impose limits on goods and services by raising barriers to trade and foreign investment, poses a significant risk to the industry. These often nationalistic measures take on various forms including restrictions on the treatment of labour and flow of capital, tariffs on trade, and government subsidies. Such measures can:
Reduce carmaker access to foreign markets
Increase production costs and/or sales price
Decrease foreign direct investment, partnership, and ownership need to address near term solvency and liquidity issues and longer-term, fund innovation.
In the early 1980’s, the American government, under pressure from the American automobile industry, pressured Japanese carmakers into limiting the number of vehicles exported to the U.S. in order to help the American industry recover from a devastating recession.
This restriction on free trade was intended to help the US industry improve its competitive ability over the long term and its financial health in the short term. However. Rrestrictions resulted in near term improvements to financial health but failed to address longer term issues of competitiveness. Japanese cars became more expensive for American consumers. On average,American consumers who purchased a Japanese...