Globalization within the Auto Industry: A Major Benefit of Globalization for GM Has Been Access to Technology Being Developed around the World

By Howell, Larry J.; Hsu, Jamie C. | Research-Technology Management, July-August 2002 | Go to article overview

Globalization within the Auto Industry: A Major Benefit of Globalization for GM Has Been Access to Technology Being Developed around the World


Howell, Larry J., Hsu, Jamie C., Research-Technology Management


Competitive pressures have forced most companies (and countries) to increase their focus on innovation. This pressure to innovate has increased the need for talented engineers and scientists--not only in the rapidly evolving computer and communications industries, but in virtually every other industry as well. The automobile industry, for example, has significantly expanded the electronics and computer content on the vehicle, with applications today ranging from powertrain controls for improved fuel economy and reduced emissions, to enhanced safety systems and chassis controls, to on-board communications systems like OnStar.

During the last decade, to meet the ever-growing need for advanced technology, General Motors has recruited a rich blend of international talent, with engineers and scientists from North and South America, Europe, the Middle East, China, Taiwan, India, and Korea. This melting pot of technologists has created a bubbling cauldron of exciting ideas that General Motors is applying to the development of a vast array of product, technology and business innovations. In fact, one of the biggest benefits of globalization for GM has been access to technology being developed around the world. Today, our most advanced research programs, such as our fuel cell technology development, are being conducted across several continents.

World Markets for Cars and Trucks

Contrary to what some might think in the midst of the computer and communications technology upheaval, the automobile industry today is a growth industry. Only about 12 percent of the earth's 6 billion people enjoy the benefits of vehicle ownership (1), and industry growth remains positive at about 20 percent per decade, with the potential for global annual sales of 65 to 70 million vehicles by 2010. Most of this expansion will occur in emerging markets such as China, India, Russia, and Brazil.

Today, the developing countries account for only a small percentage of the total number of vehicles sold each year. In 10 years, this percentage is expected to increase substantially. China alone could account for as much as one-fifth of the expected growth in the emerging markets. This data point alone explains why GM has taken such an aggressive business position in China.

Even as the automobile business grows, it is also becoming more competitive. Currently, there is worldwide overcapacity in the industry--and this has forced manufacturers to contain and even reduce costs. In the United States, for instance, the average monthly vehicle payment as a percentage of household income has dropped from 12.5 percent in 1980 to only 7.5 percent today--a 40 percent decrease. As a colleague once pointed out, at about $6 per pound a car costs almost the same as a Big Mac. This cost pressure has forced all manufacturers to reduce structural costs, seek new markets, reduce cycle time for new product development, form alliances with other manufacturers and business partners, and develop products with more innovative styling and content (2).Thus, the industry is giving more to its customers for less. Increased value combined with a healthy economy helps explain record sales in the U.S. during the last couple of years.

Although U.S. sales have surprised industry analysts, the growth forecast for both Europe and the U.S. is low--a couple of percentage points increase per year on average--compared with the much larger growth quoted earlier for the emerging markets. While customers in the U.S. have been purchasing large and luxury cars, sport utility vehicles and trucks, the growth markets overseas will be dominated by smaller vehicles, generally with low feature content. Because the majority of customers in these markets have low incomes (compared to workers in the developed world), the primary driving force for vehicle purchase is simple--the need for basic transportation. Unfortunately, the small, inexpensive vehicle is a challenge for most manufacturers, with profit margins slim at best. …

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