Enhancing Organizational Effectiveness through the Implementation of Supplier Parks: The Case of the Automotive Industry

By Czuchry, Andrew; Yasin, Mahmoud et al. | Journal of International Business Research, January 2009 | Go to article overview

Enhancing Organizational Effectiveness through the Implementation of Supplier Parks: The Case of the Automotive Industry


Czuchry, Andrew, Yasin, Mahmoud, Khuzhakhmetov, Damir L., Journal of International Business Research


INTRODUCTION

The increasingly changing competitive environment has recently reshaped the strategies and operations of organizations in different industries. In this context, organizations in the automotive industry are not an exception. Moreover, since competition is more severe in the industry, organizations are constantly striving to gain a competitive advantage in any activity possible: manufacturing, marketing, and human resource management. The North American automotive scene today is marked by a strange dichotomy. Surveys show that the three major Detroit-based automakers have dramatically improved manufacturing performance, particularly in quality and productivity, but they continue to lose market share amid consistently weak profits (Wong, 2006; Detroit's Big Three automakers face highly uncertain future, 2007).

Meanwhile, their three major Japan-based rivals are rapidly gaining ground while recording strong and consistent profits (Leow and Shi, 2006). Today, the average profit gap between domestic and Japanese automakers is $2,400 per vehicle in favor of foreign ones (Harbour-Felax, 2006). In 2006 Chrysler had a loss of $1.5 billion in the third-quarter, which broke a streak of 12 consecutive profitable quarters. The shortfall occurred largely because the auto maker misjudged the market and accumulated 100,000 unsold vehicles--in addition to its reported inventory (Mayne, 2006). Other analysts have even less encouraging news: Morgan Stanley analyst Adam Jonas projects the company's losses in 2007 of more than $1 billion. Chrysler's market share has fallen from 14.5% in 2000 to 12.9% in 2006 (Kiley, 2007). GM posted a $10.6 billion loss for 2005, its largest since 1992 (Carty, 2006). GM's vice president of global sales, service and marketing John Middlebrook, announced a slight rise in market share in the United States--from 23.8 percent in the first quarter of 2006, to 24.1 percent in the second quarter, then 25.1 percent in the third quarter (GM Market Share Increases ..., 2006).

The position of the third member of The Big Three--Ford--is not any better-off: its net loss widened to $5.8 billion in the third quarter of 2006--its worst quarterly performance in 14 years as it took a hit from costs related to the restructuring of its key North American business. The last time Ford posted a loss of this size was in the first quarter of 1992, when a net loss of $6.7 billion was reported (Wong, 2006). Simultaneously, Ford's market share dropped from 20.2% in 2002 to 17.4% in 2005 (Taylor, 2006).

Meanwhile the closest rivals of the Big Three--Toyota and Honda--are enjoying growing sales and market share. In 2006 Toyota passed Ford as the Number Two automaker in the US and now it's approaching GM which enjoyed the top spot for the last 75 years (Toyota Getting Ready to Ramp Up U.S. Production, 2007). There are many reasons why Detroit is failing to defend its home turf, most of these reasons relate to fundamental aspects of the automotive business where the Detroit-based companies have not yet fully addressed structural and cultural barriers (Maynard, 2003; p. 7).

GM, Ford and Chrysler remain behind in many key areas--product engineering, manufacturing flexibility, labor practices, supplier relations, steep price discounting, unfavorable currency exchange rates, and high costs of health care and pensions (Iyengar and Chaudhuri, 2004). Their largest competitive advantage is the loyalty of domestic customers. Even after Toyota has been present in the US market for more than 20 years with several factories around the country; customers still tend to view Toyota as a foreign player. Toyota's market share differs by the region: Midwest 11.4%; South 17.2%; Northeast 17.3%; West 23.0% (Welch, 2007). Culture, more than economic reasons tend to shape Toyota's market share: customers in Texas are more willing to support a domestic manufacturer while those in New York or California are influenced by other considerations (Welch, 2007). …

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