Could anyone please help me find the answer for these questions You are the CEO
ID: 366107 • Letter: C
Question
Could anyone please help me find the answer for these questions
You are the CEO of a European auto maker group Audi company that is planning to launch a subsidiary in Detroit Michigan (USA). The size of the European company is the equivalent of a fortune 500 company in the USA. You are asked to research the market and international management issues, including finding detailed data. You should consider the broad auto industry in the USA but you will also be asked to find detailed information about the major companies that operate in that industry
Please answer the question belows
Discuss the Market Structure in your own words
1. History of the industry
2. Major competitors and their market share
3. Market concentration ratio
4. New entry conditions
5. Merger and acquisition activity
6. Pricing schemes
** Please includes the references **
Explanation / Answer
History of the industry:
The automobile was first invented and perfected in Germany and France in the late 1800s, though Americans quickly came to dominate the automotive industry in the first half of the twentieth century. Henry Ford innovated mass-production techniques that became standard, and Ford, General Motors and Chrysler emerged as the “Big Three” auto companies by the 1920s. Manufacturers funneled their resources to the military during World War II, and afterward automobile production in Europe and Japan soared to meet growing demand. Once vital to the expansion of American urban centers, the industry had become a shared global enterprise with the rise of Japan as the leading automaker by 1980. Although the automobile was to have its greatest social and economic impact in the United States, it was initially perfected in Germany and France toward the end of the nineteenth century.
Major competitors and their market share:
Mercedes-Benz (Daimler) – 16.4%
Lexus (Toyota) – 16%
BMW – 15.1%
Audi (VW) – 10.1%
Cadillac (GM) – 8.2%
Acura (Honda) – 7.8%
Market concentration ratio: (As per Four-Firm Concentration Ratios, Selected Industries, 1992) is 84. Market Concentration is the percent of sales in a market (or market share) of the four largest firms in the market. The larger the concentration ratio, then the more market power the largest firms are likely to possess and, therefore, the less competition in the market. The smaller the concentration ratio, the greater is the amount of competition.
New entry conditions:
Within the automobile industry, the threat of new entrants is particularly low. There are several industry specific reasons why this holds true. These reasons are all tied to the concept of barriers to entry; namely, the obstacles and hindrances that make it difficult to enter the market and restrict competition. Multiple barriers to entry exist, which makes it difficult for any new automobile manufacturer to come into the industry and have success. One of the greatest barriers to entry in the automobile industry is the extremely high amount of capital that is required to purchase physical manufacturing plants, raw materials, as well as to hire and train employees. It takes a great amount of capital, not only for the manufacturing process, but also to keep up with the latest innovations in order to compete with the industry leaders. Research and development is an integral part of automobile manufacturing. New technologies are constantly being discovered that improve the quality of automobiles on the market as well as reduce costs throughout the manufacturing process. Given the nature of the industry, manufacturers must be able to achieve economies of scale. Therefore, manufacturing companies must also have the ability to mass-produce so that they can make cars affordable to customers. This can be a significant barrier for a prospective automobile manufacturer and is often a major deterrent. Another barrier to entry is the access of distribution channels. It can sometimes be difficult for a new company in the industry to find an adequate means of distribution because space within a dealership lot is limited. It is important to note that, while the average individual does not have the means to come along and start an automobile manufacturing company, foreign competitors have been able to enter the US market to compete with such companies as Ford, General Motors, and Chrysler. Many foreign companies like Audi are already well established in their own countries and have achieved a certain level of success and customer loyalty. Audi do have the capital, managerial skills, and required technologies that are necessary to be a strong competitor in the U.S. market.
Merger and acquisition activity
Though merger & acquisition plays a very pertinent role in setting the tone of not only a company but also the overall industry, in the case of Audi it may not be pertinent given the fact that all other industry players are well established already. However, Audi may try to explore the possibility of merger/acquisition with say either a component or distribution company in order to have a leverage while entering into US market.
Pricing schemes
Looks like a market based pricing would be apt for Audi. Reason being: as its already a stable long serving market coupled with narrow scope for product differentiation, Audi should do its relevant market study to figure out how their product is different from the existing cars, target the niche segment and arrive at a pricing which rightfully justify their product from others.