Monday, December 18, 2006

Building off the last posting, it is important understand the markets you want to participate in and the industries that serve them. An excerpt from a great book, Why Firms Succeed by John Kay (Oxford Press), sheds more light on this issue:

Markets are:
Based on customer needs
Characterized by the “law of one price”
Usually local
Industries are:
Determined by supply conditions
Based on product/production technology
Defined by the markets chosen by firms
Often global

You have to understand how to play in each category – industry participants can be categorized by strategic groups of competitors (global, leading edge, low cost, etc) which then often dictate how you will compete in the local markets. In many instances, you can be a global supplier competing against local competition. John Kay’s guidance is:

“The activities in which a firm's distinctive capability can offer a competitive advantage can be related the all the above in the markets and industries……the primary focus should be on identifying those markets in which it can effectively deploy its distinctive capability”

The example of GM competing in the local China market for their high end Cadillac is a good example of the issues to be considered.

Of GM's Future
By GORDON FAIRCLOUGH November 17, 2006; Page B1, WSJ

BEIJING -- A sleek Cadillac sedan created to tap China's burgeoning market for luxury cars is also General Motors Corp.'s poster model for new-car development as the company tries to slash manufacturing costs while at the same time tailoring its automobiles to fit local tastes.
The Cadillac SLS -- which will be in the spotlight here tomorrow at the Beijing Auto Show -- has been stretched to provide more legroom for rear-seat passengers, since many wealthy Chinese ride in chauffeur-driven cars. Its upright chrome grille presents a more formal silhouette than its sportier North American counterpart. And the interior of the SLS, which will start at $62,500, is more plush, with wood paneling, reclining back seats, indirect lighting and flat-screen televisions
(meeting the needs of the local market).

But underneath, the car is nearly identical to Cadillacs built for the U.S. and Europe -- with the same chassis, engine, transmission and other key components -- helping GM to save money by buying parts in bulk (global industry issues)

As GM and other major car makers fight to survive in a fiercely competitive global marketplace, they are struggling with competing priorities: tweaking vehicles to appeal to the local market, while at the same time trying to wring costs out of manufacturing by hewing to common standards (the dilemma)

"We're trying to strike a balance between global economies of scale and local-market adaptations," says Raymond Bierzynski, GM's head engineer in China.

Unfortunately, GM has not always taken this local market approach. The following an article that appeared last March in the WSJ on their efforts to penetrate the South Florida market with their luxury Cadillac SUV

Lost in TransmissionBehind GM's Slide:Bosses MisjudgedNew Urban Tastes
Local Dealers, Managers TriedAlerting Staid Bureaucracy;Marketing Goes Off Course
Trying for a Revival in Miami
By LEE HAWKINS JR.March 8, 2006 WSJ

In December, General Motors Corp. ran a series of ads across the U.S. showing Cadillacs being driven in snow. The decision to do so was made by the giant car maker's executives in Detroit, where on Christmas Day, temperatures hovered just above freezing.

The ads also ran in Miami, a vibrant car market where GM has bombed for the past 15 years. As Christmas dawned, temperatures there started climbing into the high 70s.
GM is struggling under a financial burden created by monumental pension and health-care obligations. But it's also having a hard time persuading Americans to buy its cars. One reason: GM's cumbersome and unresponsive bureaucracy, the one that ran the snow ads in Miami
(we have hurricanes but not snow in South Florida), has for years failed to connect with the tastes and expectations of consumers outside the company's Midwestern base.

In Miami, where no GM car is a top seller, GM started bilingual advertising much later than its rivals. Some of the ads it did run were duds. One wooed Miami's mostly Cuban-Hispanic population by showing a woman in a Mexican dress standing in front of the Alamo as GM Saturns raced around her (this had a huge, negative impact on the Cuban community). Another was built on the theme "Breakthrough" -- a word that doesn't have a direct Spanish translation.


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