1 - The Global Automotive Industry

International Automobile Management
Internationalization of Automotive Companies

(Wintersemester 2015/2016)
Dr. Garnet Kasperk
17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

Lecture I
THE GLOBAL AUTOMOTIVE INDUSTRY

Targets of the Lecture
 To get an insight in the Global Automotive Industry and its environment

 To understand the theoretical and practical models of internationalization for the
automotive industry
 To develop analytical skills to discuss strengths and weaknesses of international
approaches of automotive companies
 To understand management challenges linked to the globalization of automotive
networks

World economy – World gross product, 2008-2016
Source: UN/DESA

World economy – Most important markets
Source: economist.com

World‘s largest auto markets by Region/Country (by sales, 2013/2014)

Pos. Market 2013 2014 Change
TOTAL 62.756.512 64.958.981 +3,5%
ASIA-OCEANIA 32.198.117 34.619.540 +7,5%
EUROPE 15.941.854 16.060.143 +0,7%
AMERICA 13.554.826 13.179.280 -2,8%
- NAFTA 9.039.173 9.188.369 +1,7%
- SOUTH AMERICA 4.515.653 3.990.911 11,6%
AFRICA 1.061.715 1.100.018 3,6
1 CHINA 17.927.730 19.700.569 +9,9%

2 USA 7.585.341 7.687.619 +1,3%
3 JAPAN 4.562.282 4.699.590 3,0%
4 GERMANY 2.952.431 3.036.773 +2,9%
5 INDIA 2.553.979 2.570.531 +0,6%
6 BRAZIL 2.763.718 2.504.161 -9,4%
7 UNITED KINGDOM 2.264.737 2.476.435 +9,3%
8 RUSSIA 2.649.181 2.286.877 -13,7%
9 FRANCE 1.790.456 1.795.885 +0,3%
10 SOUTH KOREA 1.305.570 1.473.281 +12,8%
11 ITALY 1.304.648 1.360.293 +4,3%
12 IRAN 691.709 1.106.700 +60,0%
13 INDONESIA 880.032 879.461 -0,1%
14 SPAIN 722.689 855.308 +18,3%
Source(s): OICA: http://www.oica.net/category/production-statistics/

World’s Auto Production by Region /Country (2013/2014)

Pos. Region/ Country 2013 2014 Change
TOTAL 65.638.451 67.525.346 +2,9%
ASIA-OCEANIA 37.243.937 39.238.995 +5,4%
EUROPE 17.558.098 17.975.182 +2,4%
AMERICA 10.426.827 9.833.799 -5,7%
- NAFTA 7.106.013 7.082.340 -0,3%
- SOUTH AMERICA 3.320.814 2.751.459 -17,1%
AFRICA 409.589 477.370 +16,5%
1 CHINA 18.084.169 19.919.795 +10,2%

2 JAPAN 8.189.323 8.277.070 +1,1%
3 GERMANY 5.439.904 5.604.026 +3,0%
4 USA 4.368.835 4.253.098 -2,6%
5 SOUTH KOREA 4.122.604 4.124.116 +0,0%
6 INDIA 3.155.694 3.158.215 +0,1%
7 BRAZIL 2.722.979 2.314.789 -15,0%
8 MEXICO 1.771.987 1.915.709 +8,1%
9 SPAIN 1.754.668 1.898.342 +8,2%
10 RUSSIA 1.919.599 1.683.677 -12,3%
11 UNITED KINGDOM 1.509.762 1.528.148 +1,2%
12 FRANCE 1.458.000 1.495.000 +2,5%
13 CHECH. REP. 1.128.473 1.246.506 +10,5%
14 INDONESIA 924.753 1.011.260 +9,4%
Source(s): OICA: http://www.oica.net/category/production-statistics/

The World’s Biggest Companies – Automotive Abstract (2015)
http://www.forbes.com/global2000/list/#industry:Auto%20%26%20Truck%20Manufacturers

The World’s Biggest Companies – Auto & Truck Parts Abstract (2015)
http://www.forbes.com/global2000/list/#industry:Auto%20%26%20Truck%20Parts

Four key Challenges and Opportunities for OEMs
OEMs need to address these

challenges actively
The industry response to these

challenges could raise
profitability by EUR 2 billion in
a base case scenario
Challenges will shape the

industry until at least until
2025
Will matter much more for
established markets than for
emerging ones

OEM profitability (EBIT margin) by HQ location [%]
Source: Roland Berger, Automobilforum 2015

Complexity and cost pressure
Increase in regulations with respect to environmental and safety standards
raises costs & increases complexity
 OEMs will have to develop alternative powertrain

technologies for lower-emission vehicles
(without knowing what will end up being the
prevailing technology of the future)
-> this requires significant investments
 Regularoty pressure will tighten and prices in

established markets are likely to be flat
 It will be more difficult for OEMs to differentiate

themselves with new features while extracting
economic value from these forces
Development of profits - passenger cars
Profits captured by top 17 OEMs

Trends in the Automobile Industry

- Small cars show big potential in emerging markets

R&D spending by Industry (2014)
 The automobile industry is the 3rd

largest area for R&D spendings
 The spendings indicate future

imortance and relevance of the
industry
 The automobile industry will still

be a huge market with many
opportunities

OEMs shift part of cost pressure to suppliers

Supplier profitability by HQ location (EBIT margin) [%]

Diverging markets
Emerging markets’ share of global sales will rise from 50 percent in 2012 to 60 percent
by 2020, while their share of global profits is also set to rise by 10 percentage points.
 The location of current

production and supply
bases is not sufficiently
aligned to future sales.
 Moreover, there is
potential for “portfolio
mismatch,” as smaller
vehicle classes are growing
more strongly than others,
particularly in fast-growing
emerging markets.
 OEMs need to prepare for the Chinese aftersales market,
which will grow an estimated 20 percent per year.

Digital Demands
Digital channels as primary information Digital demand to improve driving

source for customers experience
 Next step could be online purchasing  Consumers want to combine mobility
 Opportunity for OEMs with communication
 Thread: Competition from online  This could be an opportunity for OEMs,
retailers/ puts pressure on the existing but only if they can figure out how to
dealership structure make money from this desire
Source: CAMA-Automotive
11/17/2015 Dr. Garnet Kasperk – Center for International Automobile Management

Shifting Industry Landscapes
 As OEMs seek to develop alternative

powertrain technologies, suppliers will
likely provide more of the value-added
content per car.
 OEMs need to ensure that their suppliers’

production footprints – especially in
emerging markets – match future market
demands and their own production plans
 OEMs in Europe have one unique challenge:

managing the restructuring that is clearly
required
 Everyone will have to deal with emerging
Chinese players entering new segments and
markets

Important Trends in the Automobile Industry
ICE Opimization
Downsizing and improving of the
internal combustion enging
Emerging Countries
Market growth in Driven by Emission-
emerging countries
Regulations
Fuel-cell-powered E-Cars
European Production-Footprint
Relocation of production capacities
to emerging countries
Mobility
Mobility as a service
Battery-powered E-Cars
Connectivity
Connected-Car Technology Financing and Leasing
(e.g. car-to-x Communication OEMs integrate financing and leasing
into their business models
Urban Mobility
Innovative urban
concepts of mobility

Implications for different market segments
Premium Segment Value Segment
Entry
Segment

Five key questions for OEMs in the Premium Segment
 What are the next horizons of differentiating features and services, especially in
the domain of consumer-intuitive solutions for active safety and infotainment?
 How can we differentiate our customer experience along the entire customer
decision journey? How can we design and execute a consistently positive
experience?
 How do we ensure that our unique features and services and our approach to
customer experience are aligned with the brand perception we want to cultivate?
 How can we enhance “vertical” and “horizontal”

partnerships with suppliers in order to share
development costs, establish common platforms,
and improve economies of scale?
 How can we find ways to pass on costs for CO2

reduction to customers?
Five key questions for OEMs in the Value Segment
 How can we rearrange product portfolios in our core markets to enter more
profitable segments, such as cross-overs or SUVs?
 How can we expand by cooperating with other OEMs or local players?
 How do we react to the looming threat of entry segment players expanding into
the value segment?
 How can value segment OEMs continue to create a
differentiating customer experience across all touch
points of purchase and post-purchase and create
more consumer loyalty?
 Can OEMs in the value segment further differentiate

or sharpen their brand/value proposition and
translate this into economic benefit in an
increasingly competitive market, or are there limits
GLOBAL FOOTPRINT
to brand differentiation?
Five key questions for OEMs in the Entry Segment
 How can we tap into new customer groups (in many cases, first-time car buyers)
and start building brand loyalty?
 How can we implement the low-cost approach of the entry segment, e.g., offshore
development facilities or a lean product portfolio, addressing the mainstream
needs of consumers in this segment?
 What supporting customer experience does the entry segment require? How can
they be cost efficient and still appeal to the customer?
 What is the appropriate brand value proposition

and positioning? Do we need different brands or
sub-brands to sharpen the offering in the entry
segment and differentiate it from other offerings in
the value segment?
 How might we translate cost efficiencies from the

entry to the value segment?
„The Group’s goal is to offer attractive, safe and environmentally sound vehicles
which can compete in an increasingly tough market and set world standards in
their respective class.*”
VOLKSWAGEN LEADING AUTOMOTIVE MANUFACTURE BY REVENUE

VW Vehicle Production Locations of the Volkswagen Group

VW revenue distribution (in millions of euro)
13,868
Asia
29,446
27,62
122,86
North America
Total Revenue 202,458

„ Toyota will lead the way to the future of mobility, enriching lives around the
world with the safest and most responsible ways of moving people.*”
TOYOTA

Toyota revenue distribution (in millions of euro)
17,367
45,66
86,842
28,451
13,462
Asia
Other markets

“As the inventor of the automobile, we have shaped mobility to a great extent
with groundbreaking innovations and outstanding vehicles. We aim to continue
playing our pioneering role with the ongoing development of mobility –
especially in the areas of safety and sustainability.”*
DAIMLER, MERCEDES-BENZ
11/17/2015 Dr. Garnet Kasperk – Center for International Automobile Management

Daimler revenue distribution (in millions of euro)
18,679
43,722
29,446 (20,449)
Asia
(thereof (13,294)
China)
38,025
(33,310)
NAFTA ( thereof United States)

„The BMW Group is the world's leading provider of premium products and
premium services for individual mobility”*
BMW

BMW Sales

Agenda
I. The Global Automotive Industry
II. The Environment of International Business
III. Analyzing the Resource Base for International Activities and Locational Choice
IV. Theories of Foreign Direct Investment
V. Strategies of Internationalization
VI. Market Entry Strategies
VII. Mergers and Acquisitions in the Automotive Industry
VIII. Managing Knowledge in Global Automotive Networks
IX. Communicating across Cultures
X. Ethics in International Automotive Business
17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management 35

Main organizational information

 All dates are published on Campus/L2P and are up to date
 Possible alterations will be announced by mail
 The final grade consists of two assessments:
– Part 1 (30% of final grade): Case study (7-10 pages) and corresponding presentation (approx.
20 minutes)
– Part 2 (70% of final grade): Final exam; consists of a case study and a question section.
 Case study
– For each case study one or two papers are available on L2P. These papers should help you to
get an initial insight into the topic. For a profound insight own work on further source material
is necessary.
– For each case study 1-3 guiding questions are available on L2P which need to be answered in
your paper (7-10 pages).
– Please meet the required criteria of formally correct academic writing.
– Case studies have to be submitted via email on Sunday (until 6 pm) before the lecture.
 Presentation
– A well structured presentation is required which takes up the guiding questions and answers
them in a traceable manner. Please find corresponding dates in participants.pdf (see L2P,
latest version!).
– Every group member has to take over a well-defined part of the presentation.

Case Study Groups

 Case on Lectures 1-3:
Opening Case: Economic Environment: a) The Transatlantic Trade and Investment
Partnership. Explain the content of TTIP, analyze public discussions on TTIP and its
effects on the automotive industry. Formulate your opinion.
 Case on Lecture 4 Foreign Direct Investment: a) Please analyze the UK automotive

industry. Describe industry structure, investment opportunities and challenges.
Analyze which automotive companies should invest in the UK and why.(Papers in
L2P)
 Case on Lecture 5 Internationalization Strategies: a) Analyze the

internationalization strategy of General Motors. What are the strengths and
weaknesses? b) Analyze the internationalization strategy of Hyundai c) Analyze the
internationalization strategy of VW. (Use the annual report and other materials)
 Case on Lecture 6 Market Entry: How does the Chinese Car Company enter foreign
markets? Describe the entry modes and develop a map linking it to a global
strategy. (Paper in L2P and other materials)

Case Study Groups
 Case on Lectures 7 Mergers & Acquisitions: a) Describe and analyze the acquisition
strategy of Volkswagen with focus on Scania. b) Describe and analyze the
acquisition strategy of Fiat concerning Chrysler.c) Describe and analyze a takeover
that went wrong: BMW and Rover.d) The case of Shanghai automotive and
Ssangyong Motor.
 Case on Lecture 10 Ethics in the automotive industry: The VW Case revisited

Dates
Lecture Cases
28.10 The Global Automotive Industry
04.11 The Environment of International Business
11.11 Analyzing the Resource Base for IB Topic 1
18.11 Theories of Foreign Direct Investment Topic 2: Group 1 and 2
25.11 Internationalization Strategies Topic 3: Group 1
02.12 Internationalization Strategies Topic 3: Group 2
09.12 Locational Choice - Markets Topic 3: Group 3
16.12 Market Entry Strategies Topic 4
06.01 Networks in the Automotive Topic 5: Group 1 and 2
Industry/Mergers and Acquisitions
13.01 Managing Knowledge in Global Topic 5: Group 3 and 4
Automotive Networks
20.01 Communicating across cultures Topic 5: Group 5 and 6
27.01 Social Responsibility of OEMs Topic 6: Group 1 and 2
03.02 Preparation Exam
Center for International Automobile Management 39
Important!
 Find your team in participants.pdf (L2P) and meet “physically”

 Please note that the papers provided on L2P are not more than a first source of
ideas
 Please use adequate sources for your written exercise
 Please perform as a team!

END OF LECTURE 1

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International Automobile Management

Internationalization of Automotive Companies

Dr. Garnet Kasperk

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

Targets of the Lecture

 To get an insight in the Global Automotive Industry and its environment

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

World economy – World gross product, 2008-2016

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

World economy – Most important markets

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

World‘s largest auto markets by Region/Country (by sales, 2013/2014)

1 CHINA 17.927.730 19.700.569 +9,9%

Source(s): OICA: http://www.oica.net/category/production-statistics/

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

World’s Auto Production by Region /Country (2013/2014)

1 CHINA 18.084.169 19.919.795 +10,2%

Source(s): OICA: http://www.oica.net/category/production-statistics/

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

The World’s Biggest Companies – Automotive Abstract (2015)

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

Four key Challenges and Opportunities for OEMs

OEMs need to address these

The industry response to these

Challenges will shape the

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

OEM profitability (EBIT margin) by HQ location [%]

Source: Roland Berger, Automobilforum 2015

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

Complexity and cost pressure

Increase in regulations with respect to environmental and safety standards

raises costs & increases complexity

 OEMs will have to develop alternative powertrain

 Regularoty pressure will tighten and prices in

 It will be more difficult for OEMs to differentiate

Development of profits - passenger cars

Profits captured by top 17 OEMs

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

Trends in the Automobile Industry

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

R&D spending by Industry (2014)

 The automobile industry is the 3rd

 The spendings indicate future

 The automobile industry will still

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

OEMs shift part of cost pressure to suppliers

Source: Roland Berger, Automobilforum 2015

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

Supplier profitability by HQ location (EBIT margin) [%]

Source: Roland Berger, Automobilforum 2015

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

 The location of current

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

Digital channels as primary information Digital demand to improve driving

11/17/2015 Dr. Garnet Kasperk – Center for International Automobile Management

Shifting Industry Landscapes

 As OEMs seek to develop alternative

 OEMs need to ensure that their suppliers’

 OEMs in Europe have one unique challenge:

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management

Important Trends in the Automobile Industry

17.11.2015 Dr. Garnet Kasperk – Center for International Automobile Management