The Effects of Economic Convergence on the Formulation of Marketing Strategy: An Analysis of the European Automobile Industry

By Hyun, Jae Hoon | International Journal of Business, Spring 2010 | Go to article overview

The Effects of Economic Convergence on the Formulation of Marketing Strategy: An Analysis of the European Automobile Industry


Hyun, Jae Hoon, International Journal of Business


I. INTRODUCTION

In order to formulate an effective marketing strategy, an appropriate understanding of the market condition is an essential requirement. The changing context of the market condition such as market concentration and growth have been found to have a significant impact on price levels, advertising expenditure, and the number of models offered (Boulding and Staelin, 1990; Craig, Douglas and Reddy, 1987). The formation of the internal market in the EU seems to be the most significant environmental change demanding the refinement and adjustment of marketing strategy for firms from within and outside the EU. A high degree of market convergence seems to imply the need for shifting strategic direction towards more integration than responsiveness to national differences.

Most of the physical and administrative barriers were removed after the adoption of the Single European Act (SEA) in 1987, and the EU Treaty in 1992 secured the free movement of capital and service. Together with the formal introduction of the single currency in 2002, the EU has been drawn near to the economic union assuring a larger and more converged market. Such a sizable market with reduced barriers may be served from smaller numbers of larger plants, located for greater economies of scales (Yannopoulos, 1990; Sapir, 1996; Amiti, 1999). The rationalization of industrial activities results in dynamic growth and efficiency which promote the competitiveness of firms and competitive environment within the European market (Savary, 1993). In line with the transformation of the marketing environment, companies face uncertainty including both threats and opportunities (Kotler, 1994).

The objective of this study is to identify the marketing implications of economic convergence in Europe and specific consequences with the particular reference to the transformation of industrial structure, price structure, technological dimension and the competitive conditions. Considering that the formation of the EU has been significant for the firms within and outside Europe, it seems meaningful to attempt to identify what changes have been made and how this can be interpreted for the marketing strategy.

This study is comprised of three sections undertaking analysis followed by discussions and marketing implications. The first section is devoted to the literature review in the search for the relevant factors determining the environmental transition stemming from the completion of the internal market. The second section provides the approach of this study and the source of data to relate identified environmental factors and the effectiveness of marketing strategies. The third section examines the transformation of industrial structure and competitive environment by incorporating data from between 1994 and 2004 relating to industrial concentration, trade flows, price structures and market share.

II. LITERATURE REVIEW

The consequences of economic integration affecting the competitive environment in the EU are comprised of static and dynamic effects stemming from market size and efficiency gain (Balassa, 1961; Dunning, 1992; Savary, 1993; UNCTC, 1990; Yannopoulos, 1990; Hold and Reed, 2004). Together with increased size of firms within the region (Molle, 1994), economic convergence accelerated the industrial concentration and rationalization (Acocella, 1992). Reduced costs due to the removal of tariff barriers enhance the competitive position of a supplier and this encourages European firms to rationalize industrial structures (Rawlinson and Wells, 1993). Despite their origin, multinationals holding multiple marketing networks may reorganize to serve such a sizable market from smaller numbers of larger hubs, located according to comparative advantage to derive greater economies of scales (Yannopoulos, 1990; Savary, 1993). Several empirical approaches confirm increased industrial concentration within the EU (Jacquemin, 1990; Brhlhart and Torstensson, 1996; Sapir, 1996; Amiti, 1999).

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