Globalization Drivers Essay

Globalization drivers Ultra luxury car industry Luxury car industry There are four different kinds of levels in the luxury car industry. The levels divide the actors of the market into different levels depending on their grade of luxury. We have chosen to focus on the highest level of luxury cars; the ultra luxury cars. The main players of this level are companies such as Ferrari, Mercedes-Benz and Porsche, but the level also includes the not as big companies as Cadillac, Aston Martin and Maserati 1. All these companies have in common is that they are international companies with a two-way communication between the head quarters and the different desks scattered around the world. The head quarters develop and supplies the desks with main car models while the desks receives the customers preferences so they together can produce custom made cars 2. Segment The companies in the Ultra Luxury Cars industry directs to a narrow group of costumers, which belongs to the upper class or upper middle class all over the world. They are all sharing almost the same main needs, which consists of status, speed and transportation. The customers achieve these needs by buying the ultra luxury cars because they represent a very high level of exclusivity, individuality and craftsmanship 3. Since the customers share the same needs overall, it could be termed as Levitt’s (1983) convergence perspective. Where the needs of customers all over the world are becoming more converged, which is typical for the market of luxury goods. Since the customers in the segment, which the ultra luxury car companies focus on, share overall the same needs and then they are localized all over the world, the industry considers a globalized market. Most companies that are involved in buying heavy machinery or other large purchases have high fixed costs and the automobile industry is no exception to this. However there are still differenes within the whole industry, for example the demand and production of a Porsche may not be as huge as with Toyota for example, which essentially means that a luxury car’s fixed cost per unit is higher than an ordinary family car’s. The rent of a factory and all the other different expenses to keep the production running form the fixed costs. As the labour expenses for example are a lot cheaper in Asia, most car companies, including the luxury ones, have migrated their production there. The pressure for globalization is clear, but still there are some luxury automobile companies that have stayed loyal to manufacturing the cars in their country of origin, such as Aston Martin. (https://www. honk. com/aston-martin) Experience curve Most luxury automobile companies have many decades of experience in manufacturing their cars, which means both skilled expertise in technology as well as years of building a strong and distinguished brand. In luxury cars especially the significance of the brand is very important as many of the customers purchase these cars only for the status symbol that they give its owner. Building a solid brand usually takes years of work in exceeding the customers expectations, it demands strong-willed marketing, filling a specific niche at a right time. Sourcing Luxury automobile companies usually favour centralized purchasing which means that they buy the parts that they need from one location for all the locations within the organisation. This provides standardization of a product which is quite essential in luxury cars, as well as some cost-savings. Automakers universally outsource production of parts or sections of vehicles, and for example Porsche is known to use a Finnish company, Valmet Automotive, to assemble its two main product lines, the Cayman and the Boxster. (http://www. just-auto. com/news/porsche-to-outsource-boxster-production-to-osnabrueck_id121470. aspx)Product development costs Because of the nature of the product, the development and research of new technologies can be quite costly within the automobile industry. Technological changes The last decades the technical development for luxury automobiles has gone very quickly. For example the first luxury automobiles were noted as luxury just by having seat heating or high beams. Nowadays luxury is more about buttons for technological equipment’s, voice command, fuel efficiency and safety for the car driver. With having this thoughts in aspect, you can considerate the technical changes in the luxury automobiles industry as a pressure for globalization. Of course there are still some exceptions, for example Rolls Royce that is having a more of a British approach in their cars, with less buttons and simpler interior and equipment. These things can point against a more localization approach. Favourable logistics The logistics for the luxury automobiles depends for how long distance they have to be transported, so for the consumers it will be cheaper if they can find an automobile as close as possible. Another aspect is that depending from which country the automobile is imported from you have to pay a different amount of taxes and insurance fees and even other regulations can appear. Therefore the companies will have an advantage if they are locally settled, even though the really rich clients won’t care about the cost for the transports. Actually this may be why many automobile companies has started factories in Asia, though for example the German automobile companies had made a between 30-40 % sale growth in China. They may by this decision not only gain low labour costs but also lower transport costs. Country specific differences If you look at last year’s statistic for automobiles producing, low labour cost countries like China, Japan, South Korea and India is all in the top five, the other country in top five is Germany. This shows that many automobile brands have factories in these countries just for the low labour costs. In Germany the automobile industry is one of the biggest employers in the country, one reason is that Germany have many famous car brands and they have a lot of experience in the country. Between the different luxury automobile brands it differ a lot from where they are produced, like Mercedes-Benz have factories in a lot of different countries, Ferrari is only produced in one city and like for example Aston Martin is only produced in cities in UK. Therefore you can say that there is different kind of localization and globalization approaches. Competitive globalisation driver The next driver concerns the competitive environment, eg the amount of competition from other countries and continents as well as if there is any interdependence between countries. According to Yip (2003), globalised competitors and country interdependence are pressures for globalization. Globalised competitors In the luxury car industry, there are competitors from for example the US (Cadillac), Germany (BMW, Mercedes-Benz, Maybach, Audi), Italy (Maserati, Ferrari), Japan (Lexus, Acura) and England (Aston Martin, Rolls-Royce). According to Stonehouse et al (2004) a company that faces global competition has to compete on global terms as well. Therefore these facts indicate that this specific industry has become or are becoming globalized since there, given the examples above, are competitors from Europe, Asia and North America. Interdependece of countries In today’s economy and as a result of specialization, companies are focusing on their core competences. For example, the German brand Mercedes are mainly focusing on innovation and design (Mercedes. com) while Acura have environmental friendly performance and innovation in the center of attention (acura. com). The headquarter of Mercedes is placed in Stuttgart and the production is taking place in Germany, Japan, USA, France, England and