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The History Of The Automobile Industry Marketing Essay

Paper Type: Free Essay Subject: Marketing
Wordcount: 3311 words Published: 1st Jan 2015

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In todays world Korean car manufacturing is the major competitors in the automobile industry. It is a question that how these industries succeeded in such a mature market and what are their competitive strategies. And it’s look like a change in way or direction from late entrants driven to meet up with established firms in terms of technology, knowledge and skill, product design, to threatening innovative rivals. In this we are to analysing Korean product Hyundai car internationalization process their strategies. This project provides suggestion basically in three area, The Hyundai product development, Hyundai competitive strategies, and Hyundai internationalization process.

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Volkswagen was founded by Ferdinand Porsche in 1937. After a long time working by Daimler, Ferdinand Porsche started his own automobile advisory company. Since he realized that his proposed model wasn’t accepted by the client, he made link with the Nazi-government to produce the car to make his dream true. In the Second World War the factory of Volkswagen was used for the production of war materials. After the war the British army restarted the factory and the model, designed by Ferdinand Porsche, showed to be going to be the most sold car ever: The Beetle. In the fifties Volkswagen started to sell and, in some cases, produce in other countries, for example: Canada, USA, Brazil and South-Africa. In 1964 Volkswagen opened a plant in Mexico to be a bigger player on the USA-market. In the seventies and eighties Volkswagen bought other companies, for example AUDI in 1969 and Seat in 1986. In 1 974, Volkswagen started the production of the Golf, one of die new generation cars of Volkswagen. Beginning 90’s, Volkswagen was involved in some crisis, but after introducing the New Beetle in 1.997 they proved to be a solid carmaker in the international market.

Volkswagen internationalisation process

Volkswagen as a German centered international player: At the beginning of the 1 9Js Volkswagen was the only German carmaker with a considerable level of international production activities. Although BMW and Daimler-Benz, the other two of the German Big Three car assemblers, sold more than half of their overall car production outside Germany in 1 990. BMW realized only less than 4% of its production not in Germany (mainly CKD-assembly in South Africa) and Daimler-Benz had no passenger car production facilities abroad at all at that time. In the same year, 1990, the Volkswagen consortium (consisting of the brands Volkswagen, Audi and SEAT at that time) sold exactly two thirds and produced 40′ of all units outside Germany The structure of internationalization of the German carmakers which prevailed until the end of the 1 980s was characterized by Ulrich Jurgens as follows: Daimler-Benz is still exclusively a German company in the area of car production; it only has international production site s in the area of trucks and commercial vehicles. BMW and Porsche, finally, are the firms which are most closely limited to Germany in their production and work force. He described the Volkswagen consortium as the only German automobile company that pursued an internationalization strategy with regard to it production system and as a European oriented corporation. This definition of Volkswagen as a European oriented corporation could be quite adequate for the situation until the beginning of the 1 990s-but holds it also for the last decade. In a more recent analysis, Jurgens distinguished three periods of the development of Volkswagen’s industrial model which are separated from each other by periods of internal crisis, indecision, trial-and-error approaches and accompanying internal controversies and uncertainty, which were of extended length: from around 1968 until 1 974 in the first case and from around 1 988 until 1994 in the second. One important question is: What came after the period of internal crisis, indecision, trial-and-error approaches and accompanying internal controversies and uncertainty in the past decade. The main argument is that Volkswagen changed its business model and production system as well as its internationalization strategy in this decade. After a small crisis until 1993/94, almost during the second half of the 1990s Volkswagen-as well as BMW and Daimler-Benz- played a very active and successful role in the international automobile industry. It is argued that Volkswagen’s crisis of 1993/94 reflects only a transition period towards a new and successful consortium profile where major changes in the three dimensions of (1) corporate governance and profit strategies, of (2) product structure and market strategies and of (3) production systems at Plant and headquarters level coincided with important shifts in the internationalization profile. In short, Volkswagen’s internationalization profile changed from a multinational to a transnational company. Meanwhile m multinational companies all three dimensions are structured mainly by a multiplicity of local logics of the plants and headquarters, in transitional companies they are modeled increasingly by a global or at least by pluri logic. This differentiation of multinational and transitional companies combines aspects of the spatial structure of co-ordination and control, of the configuration of values, capacities, knowledge and functions and of the overall spatial division of all productive functions of the value chain’. At the beginning of the 1990s, 13MW and Daimler-Benz were completely German-centered companies concerning their corporate governance and profit strategies their product structure and their production systems. But as highly internationalized with respect to their market strategies both companies could he described as distribution oriented multinational company.

Internationalization theory fits with Volkswagen’s pathway: Internationalization is one of the steps of dynamic structural changes of the firm. Ultimately Volkswagen’s sustainable growth in the domestic market as well as strong motive of being an international player led by competitive market forces and globalization reveals the degree of its dynamic structural change. However, it is necessary to track the steps of internationalization of Volkswagen so as to understand its motive of dynamic capitalism as well as the degree of’ intensity of structural changes. There are a number of different approaches to internationalization. These variously are based on increasing forms of my involvement or commitment. They reflect the fact that, since World War2, the international trading environment has become more complex and the interdependencies between firms in different countries become much greater. The first of these approaches classifies firms in terms of management approach to international environment here, according to Fletcher and Brown we use the following approach, which does extremely fit with Volkswagen’s internationalization process. From domestic to translational: In this approach, firms are considered in terms of their orientation. On the one hand, the firm can operate as a domestic entity and in the past could be quite successful operation within the domestic market.

Export marketing: It is die first stage iii the firm’s exploration of opportunities outside the home in market. By leveraging its experience in the domestic market, the firm exports its products overseas. This may involve a separate strategy to produce specifically for an overseas market or it may be the result of an attempt to dispose of surplus production or utilize excess production capacity. International marketing extends international involvement further and usually includes a greater commitment of resources to the overseas market. In case of Volkswagen, it began to export cars in 1949 with an introduction in the Netherlands and gradually in other European countries and USA. Since its inception in 1937, after twelve years of operation, Volkswagen became a huge production oriented company because of Hitler’s People’s Car skim as well as active participation in military car production in Second World War, which led Volkswagen to expand its learning curve as well as to achieve economies of scale in production and management. Similarly, post war high inflation, shrinkage of domestic market, huge amount of production and market seeking motives led Volkswagen to export abroad.

Multinational: This involves creating programs specifically for each overseas market that take into account the different and unique circumstances of each country. In this second stage of internationalization the firm’s motive may be either market seeking or resource seeking, or both. Therefore, in 1952, with the establishment of Volkswagen Canada ltd. it started exploiting the market of North America. However, further establishment of Volkswagen do Brazil Itd became the largest Brazilian car manufacturer led by resource seeking and market seeking motive of internationalization. In this stage two kinds of pathways of internationalization are seen e.g. distribution-oriented-such as Volkswagen of South Africa Ltd, Svenska Volkswagen AB in Sweden and production-oriented such as Volkswagen Brazil and Volkswagen China.

Global or transnational: Finally global or transnational marketing, the last stage of internationalization, focuses on leveraging the global assets of the firm by taking what is truly unique and different in each country in which it operates combining the unique features to create the most globally competitive offering. The transnational firm does not have a centre from which decisions are dictated to operations elsewhere -rather, the various operations operate relatively autonomously. They are connected to each other in the interests of dissemination of information and global rationalization. However, the effect of rapid globalization as such decentralization of the production, restructuring the organization took place in Volkswagen since 1990. Multinational Volkswagen ltd has become a global player by diversifying production around the world, restructuring organization such as Volkswagen Finanz gmbh. Which is transformed into a stock company on 1 January 1994 as a bank Volkswagen Financial SenT ices AG, to enable the access to the lowest-cost financing on a world basis. Moreover, they also took the advantage of being first mover in China by setting up two production-base joint ventures with Chinese participation as well as acquiring a number of companies in different parts of the world. In addition to this, product diversification and consumerism concept, e.g. Rent a car service through Europe car International S.A and Financing and leasing to the end users have derived Volkswagen to dedicate itself to a real transnational company after 1999.

In the steps of internationalization process, Volkswagen’s movement tends to be a path-oriented step forward advancement derived by the global industrial capitalism as well as organizational setting. As we pointed out that Volkswagen initiated its internationalization through small scale exporting to neighbor country The Netherlands and gradually stepped up to the next stage multinational. Since the wave of globalization hit the world industrial capitalism, interestingly, Volkswagen also changed its organizational structural to respond that wave and became trans-national company. According to the rapid dynamics of industrial capitalism of the world Volkswagen keeps continuing the changes in structure and strategy in response to the market competition Its development of being international is therefore path oriented in terms of the internationalization steps, which was derived time

Strategies of Volkswagen development

The first strategic decision was similar with Ford. Hyundai, was entered in the market that means it was in his early stages, was pushed as it had to struggle with the combination of G.M./Daewoo. Three years of agreement with Ford in trying to settle a partnership did not success because of Hyundai’s insistence on being the managerial leader in the joint venture. Hyundai tried to form alliances with other different or advanced global auto manufacturers including Volkswagen of Germany. Each time, countinsoly keeping managerial control local, this agreement did not pass because it is against the policy of foreign auto makers under “world car” strategy. There was a successful agreement with Mitsubishi in 1982 to progress technology import. Hyundai was maintaining managerial control with Mitsubishi 15% equity involvement -or in direct competition with Mitsubishi in foreign markets.

After that Hyundai leadership has decided to “go it alone” accept the related or relevant technology through licensing agreements. The “Pony” was a risk indigenous model that Hyundai lastly got success in processing in 1975.

Another strategic decision was taken when the military government forced to merge Saehan Motors (formerly Daewoo), who are owned 50% by GM, with Hyundai in 1980. Apart from merging, Hyundai tried on pursuing free access to many market with indigenous models and products. This agreement did not success and Hyundai had to build a new plant to produce the newly technological developed and extremely famous front-wheel drive car. Hyundai again proved them and showed their abilities by successfully entering the U.S. market in 1986 with the “Excel.”

A third and very important factor contributing to Hyundai success has been the development of an indigenous power train. Auto industry specialists knew, and as former research director of IMVP MIT once commented in the late 1980s, that “to get the design technology in power train, engine and transmission, will be one of the last hurdles for Korean auto makers in becoming an independent producer in the global automobile industry” In 1991, after long time Korean automobile manufacturers successfully produced a designed this component of the Korean-made automobile. No longer must Hyundai import a foreign-designed engine and transmission for their indigenous automobiles. By this designed development Hyundai and Korean auto manufacturers’ power in maneuvering effectively product/marketing strategy.

Last strategic decision was for a long range planning. hyundai has decided to increase their production to 2.1 million vehicles per year and design and manufacture a new model every year to make themselves stable and compete in the domestic and foreign marketplace. To achieve this goal, Hyundai has made a very big research facility and international size proving ground on the west coast of Korea at Namyang. A commercial vehicle plant passenger car plant at Jeonju (100,000 annual capacity) and a second passenger car plant at Asan (300,000 annual capacity) are now under construction far from the large Ulsan plant. Another large plant will be finished in the south-west by 2000 at Yulchon (500,000 annual capacities). Now Hyundai per year production capacity has increased 2.1 million vehicles annually.

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Michael Porter’s National Diamond Framework

However, to understand the driving factors of dynamic industrial capitalism, in the context of globalization, Porters ‘DIAMOND’ model has been used to analyze the nature of Volkswagen’s internationalization. Porters ‘Diamond model’ shows the interaction of four conditions that usually need to be favorable if an industry in a country is to gain a global competitive advantage. In case of Volkswagen, Porter’s diamond shows that four conditions are important for competitive superiority; a complete explanation is given below, which gives a clear indication of its overall dynamic capitalism through the internationalization, based on following competitive components.


Demand: Demand at the initial stage of capitalism of Volkswagen, was derived by People’s Car concept and production of vehicles for the military during World War

II. Rapid increase of sell and expansion of distribution network in Europe, North America, Australia., South Africa and last of all Asia led by market seeking motive, is the second phase of responding to the dynamic capitalism of the car industry.

Firm’s Strategy, Structure and Rivalry: Volkswagen has changed its global strategic view from production oriented to consumer oriented (Detail is explained in the Global marketing concept of Volkswagen) through transationalization Industrial rivalry from the Japanese and USA’s point of view has been emerged which is also another force of new trend of dynamic capitalism in the vehicle industry. Globalization itself is a competitive force that derived Volkswagen to be more strategic and competitive. To face the rivalry, Volkswagen consortium consists of different nature of companies from different countries around the world has been developed. Production of the cars is also being decentralized according to engineering of the production in order to enjoy the economies of scale and scope.

Related and Supporting Industries: Volkswagen took the first moving advantage in China and Brazil. It has created the strong backward and forward linkages around the world through the concept of consortium. Volkswagen estimated the limitations of the product life cycle as well as the trend of dynamic capitalism of the car industry around the world in terms of rapid changes of consumer’s taste and technology. Therefore, it has expanded the product lines and set up a plant in China for producing the trucks, as China is going to be the factory of the world. Organizational structure has also been broadened up to financial institution, which is a kind of expansion of forward linkage keeping a view to rapid dynamic capitalism in globalization.

Factor Condition: Diversification of production makes the product cheap in the nearest market of its production, product line extension and product diversification meets the perfect consumerism concept. Volkswagen consortium concept creates several distributions, production and market-based networks around the working Volkswagen also exploited the absolute advantages of its capital and organization as well as locations abroad as it moved to cheap labor arid raw material based countries such as Brazil, China, and Mexico. It also considered the comparative advantage from the specialization of the country in terms of knowledge, existing backward linkage facilities and expertise in specific field.

However, the above mentioned points in the analysis of Porter’s diamond model in respect of Volkswagen show an apparent indication that it has been moving forward to gain global competitive advantage, therefore, keep changes its structure and strategies to cope with the dynamics of industrial capitalism through the process of internationalization.


The internationalization of Hyundai Motor Company shows the growth process of a firm, from establishment to becoming a global company. Especially, it has shown that the internationalization process is an incremental process of acquisition of knowledge and technology. HMC lacked knowledge and technology compared to other large foreign companies, because it was a late starter (established in 1967). However, HMC has overcome these disadvantages with continuous learning, knowledge translation, and the gaining of experience from local markets. The process of overcoming HMC’s disadvantages can be seen in its internationalization process.


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