KEYWORDS AND ABBREVIATIONS § Ansoff matrix § BCG Growth Share Matrix § FF – Porter’s Five Forces § GM – General Motors Corporation § HEVs – Hybrid Electric Vehicles § PESTEL – Political, Economic, Sociocultural, Technological, Environmental and Legal macroeconomic forces/factors § Porter’s Diamond framework § SWOT – Strengths, Weaknesses, Opportunities and Threats analysis § UAW – United Auto Workers union


It is imperative that it should first be borne in mind that we live in a dynamic world where the environment is constantly changing. Companies employ data and the services of analyst to try and understand their environment. Using the deductions from such exercises, managers draft and implement strategies. This kind of act may suggest that strategy is primarily a rational, analytical process of deliberate planning (design school of thought). However, with the realities of the time (e.g. the present financial crisis and fall of many big corporate firms like Lehman Brothers), it is inevitable to agree with the learning school of thought that strategies are flexible and the intended strategy would differ from the actual/implemented strategy (emergent strategy) (Grant, 2008). In the automobile industry, recent events have brought about an end to General Motors Corporation’s (GM) 77-year reign as the number one automobile company with the highest sales as Toyota takes it’s place in 2008 (MSN Money, 2009; CNNa Money, 2009). Aside

from the ubiquitous economic crisis, much blame as been put on the management of GM as allowing the firm to fall into a trap of slow change by offering customers products with slight changes (Edmunds, 2009) for a long period of time thereby neglecting earlier signs of strategic inflection points (Johnson et al., 2008). However, the pressure that the difficulty of accessing loans is putting on the company coupled with other external pressures, from the government (to restructure (Financial Timesa, 2009)), labour union (The Economista, 2009), dealers, suppliers, the fuel-crisis (which is causing a shift from big cars to smaller-more fuel-efficient vehicles) and disruptive technologies like the electric car, is forcing GM to not only restructure but to also restrategize if it will survive in the present day environment. Different frameworks and models exist for firms to analyse their internal and external environments and their relative performances. This helps them to have a better understanding


of the factors critical to the success and positioning of their firm. Among such frameworks are Dunning’s Eclectic Paradigm (Cavusgil et al., 2008), Porter’s Diamond and Five forces, Directional policy matrix, Value Chain analysis (Johnson et al., 2008), SWOT analysis (Kotler and Keller, 2009), etc. The appropriate framework(s) to be used depends on what the firm seeks to address and in what context it seeks to do so (Johnson et al., 2008). This is because many firms today operate both on a national, regional and global basis and as such need appropriate strategy for each individual environment (Schlie and Yip, 2000). GM, as a multinational enterprise (MNE), operates in approximately 55 countries (excluding US and Canada) and it’s services and operations ranges from development, production and marketing (of cars, trucks and automobile parts) to finance and insurance services (Datamonitor, 2009). In considering a restructuring program to effectively position itself, an analysis of the firm’s competitive industry and attractiveness at all levels is necessary. The result of such analysis may need the firm to shed off some of its operations (either by outsourcing them or shutting them down completely), so as to be able to compete better with its domestic and foreign rivals. “There would be fewer brands and employees, but also substantially fewer obligations” (Globeandmail, 2009) if such action is taken. A potent tool and a flexible framework that could assist in describing and assessing competitive pressures in an industry and industry attractiveness is the Porter’s five forces (FF) model (Niederhut-Bollmann and Theuvsen, 2008). The model helps a company to decide how and where to make strategic changes (Rugman and Hodgetts, 2003) for gaining and sustaining competitive advantages over rival firms and thereby generating above-average return on investments (Niederhut-Bollmann and Theuvsen, 2008).


In the context of GM’s present situation, figure 1 and 2 shows a FF framework for assessing the competitive forces in play in the automobile industry in the United States where GM’s headquarters is and its largest national market (GM, 2009).

Figure 1: Five forces Model (Porter, 2008)


Figure 2: FF model applied to GM’s automobile industry in the US s The FF model is credited for helping to identify competitive forces that affects prices, costs and required investment and that thus shape the industry’s structure (Porter, 2008 Porter, 2008). Considering the present financial predicament of GM with rumours of possible bankruptcy, the model is therefore an appropriate analytical tool to assess the industry’s attractiveness and consequently decide the best fit between GM (the organization) and its industry (the environment) i.e. how best to position it in the automobile industry for optimum performance (Miller, 1988).

Starting with buyer power, in the case of the dealers (buyers) of GM, they have been labelled as underperforming (The Economista, 2009), but powerful because the laws of the states in which they operate has made them so and made it impossible for them to be side tracked. The cost of running with these dealers puts GM in an unattractive position compared with its foreign rivals who don’t have that many dealers through which they deal. GM has nearly five times as many dealers as Toyota while selling about a third as many cars per dealership (Globeandmail, 2009). This is eating into GM’s profit and it is a constraint to its positioning and a threat to its success. Economies of scale is said to be important to the automobile industry (Johnson et al., 2008) and a barrier to potential entrants who until they can reach a certain volume will incur higher unit costs. Capital requirement into the industry is also high but government and legal barriers are relatively low due to increasing globalization and free trade policies as witnessed in recent times (Hill, 2005). However, with borders opening up and reduction in trade barriers, the possibility of not having to be mandated to set up full-fledged factories in the host country exists and potential foreign entrants can export their products directly as long as they can get access to distribution channels such as the car dealers. The potential solution to the threat of new entrants who may be able to leverage their existing capabilities and cash flows to shake up competition in the new market is for incumbents (such as GM) to try and hold down prices or boost investment to deter them (Porter, 2008). However, with the financial difficulties of GM as of date, this would be impossible. Therefore, new entrants (especially the emerging giants) may find it easier to come into the market and take advantage of the incumbents’ financial incapacity to either cut prices or retaliate and defend their market positions. As the world cuts down on expenses because of the financial crisis, the emerging giants’ low-cost production models, based on cheap local labour, provide even more of an advantage (The Economistb, 2008).

GM’s part and raw materials suppliers’ threats are low because they are quite many (ranging from Tier 1s to Tier 3) (Times, 2008). But alternatively, the strong labour union (United Auto Workers (UAW) union) which is their major supplier of labour is a potential threat to GM’s financial viability and survival. The liability of pension and health-care expenses incurred currently adds an additional $1,400 to the cost of every vehicle coming out of a GM plant compared with rival products (The Economistf, 2008) and is expected to reach $6 billion by 2013 (The Economista, 2009). This is a tremendous amount and GM needs to find ways to reduce this liability so that it can have more finance for development and growth of the company. In summary, the FF analysis shows that threat of substitutes is low, of new entrants is high, of suppliers is high, of buyers is high because of laws that make it impossible to switch or bypass them and thus in turn make rivalry with foreign competitors operating in the same market high. The automobile industry in the US in lieu of the above stated threats is therefore currently not attractive on the surface though until other factors which the model ignores can be considered, its attractiveness relative to GM cannot be ascertained. The challenge here therefore before one can choose a strategy (cost, differentiation, focus or combinations) is to identify GM’s competitive advantage as a firm, it’s wider economic, ecological, technological, political, legal and socio-demographic environment’s influence on market conditions and developments (Niederhut-Bollmann and Theuvsen, 2008) and how they constitute or expose a strength, weakness, opportunity or threat to the firm. Any conclusion or strategy deduced from using FF tool alone without fathoming in the just listed factors would be futile or misaligned. For example, choosing a cost leadership strategy without considering if GM has the financial capability to back up such a strategy (which it currently doesn’t have) or a focus or


differentiation strategy without considering which product it should promote or focus on and the implication of PESTEL factors on the chosen product would lead to a wrong positioning. The government’s commitment to reduce carbon emissions, dependence on fossil-fuels, and funding of technologies to develop hybrid electric vehicles (HEVs) (see table 2) would mean that GM will have to scrap unattractive brands irrespective of whether customers still like them or not. Research shows currently that sales of electric vehicles had the greatest slump, 43.9% decline in March of 2008 compared to 36.5% for other types of passenger vehicles (Edmunds, 2009). Nonetheless, GM has no choice other than to position itself in line with government’s policies, initiatives and intentions. Other government initiatives whose implications needs to be considered include; negotiation for universal healthcare (an attempt to extend health insurance to employees not previously covered) (The Economistc, 2009); a cap on carbon emissions (Financial Timesb, 2009); a new act called “Employee Free Choice bill” (The Economistd, 2009) which could raise wages for union members and drive up employment costs for firms; “buy American clause”, which means GM may have to source its steel from US where its relatively more expensive than that in the newly emerging economies; and the intention to invest in substitutes industries such as airports and high-speed trains (The Economiste, 2009). Therefore, since the FF framework doesn’t take into cognizance the implication of government’s fiscal policies and makes it difficult to assess the internal strengths and capabilities of the firm (i.e. GM), other frameworks that allow for such critical analysis such as PESTEL, SWOT, Porter’s Diamond must be consulted (see table 1 & 2 for SWOT and PESTEL analysis relevant to GM). As an example, to rectify the model’s exclusion of complementary products which are seen as potential forces in the industry (Johnson et al., 2008), Porter’s Diamond can be applied (the “related and supporting industry” determinant) to do so (see figure 3). The implication of complementary products, for example price of fuel,

is that it would make GM’s car brands (sports utility vehicles and pickup trucks) that consume a lot of fuel unattractive. This means GM has to either pull them off or invest in technologies to improve their fuel-consumption rate. When a thorough analysis of the significant macro and micro environmental factors of GM’s industry has been done, it is imperative to carry out a value chain analysis to reveal the pressure points that exists in its value chain and spot areas where there is a misallocation of resources to wasteful or non-value adding activities (Taylor, 2005 cited in Bonney, et al., 2007). Value chain helps the firm to identify activities where it can best apply its existing capabilities (Diez-Vial, 2009) and to identify which activities to outsource in order to reduce cost by taking advantage of country-specific advantages. Outsourcing most of the component manufacture and assembly aspect of GM’s operations which needs a lot of labour to other countries where labour is cheaper could relieve GM from employment liabilities that it is currently facing in the US till it can resolve issues with the UAW. Alongside the value chain, a BCG Growth Share Matrix (Lancaster and Reynolds, 2004; Dibbs et al., 2006) would help determine which of the company’s brands are presently viable or not (see figure 4). As earlier stated concerning fuel-efficiency and carbon emissions, gasguzzling brands such as the Hummer and Pontiac should be pulled off and more investment put into building smaller fuel-efficient vehicles and HEVs. For future strategic development, GM needs to first clearly define a viable segment to serve and apply a combination of focus (niche strategy (Kotler and Keller, 2009)) and differentiation strategy (since both are not mutually exclusive (Song et al., 2002)). A focus strategy would help GM to be able to cut down on cost as it moves away from a broad-line producer (Grant, 2008) to one with fewer ranges. It will then make it possible for it to

differentiate its product from that of the competition since it focuses on a particular niche market which it can serve best with its core competencies. In conclusion, a basic factor missing in most of the frameworks is the element of “chance”. The reality of this as experienced in recent times with the financial crisis means GM as a firm has to be agile i.e. [able] to cope with unexpected challenges [so as] to survive unprecedented threats of [the] business environment, and to take advantage of [such] changes as opportunities (Sharifi and Zhang, 1999 cited in Swafford et al., 2006). GM needs to be sensitive enough to avoid competency traps and pick strategic inceptions early to re-align their strategic intent to their actions (Johnson et al., 2008).


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APPENDIX Table 1: SWOT analysis for GM STRENGTH • Strong brand portfolio • Growing business in Asia Pacific and Latin • America region • Large scale operations OPPORTUNITIES • Increasing demand for hybrid electric vehicles • Opportunities in emerging markets • New models Stringent emission standards THREATS • Declining demand for light vehicles in US • Rising raw material prices • ELV Directive • Recession and tight credit • Declining market share • Product recalls • Declining financial performance WEAKNESS

NOTE: End-of-life vehicles (ELV) Directive is a law that makes vehicle manufacturers responsible for taking back end-of-life vehicles offered for sale after July 2002 for dismantling and recycling (Datamonitor, 2009).


Table 2: PESTEL analysis for GM Free trade policies, employee free choice bill, universal healthcare plans, buy “American” clause, investment in airports and high speed trains, tax credits (as much as $7,500) for buyers of plug-in cars, $25 billion in lowPOLITICAL cost federal loans for production of advanced technology vehicles (to build plug-ins or the batteries and components needed to power them) (Bloomberga, 2009), bill for new energy efficiency requirements, clean transportation fuel (Bloombergb, 2009) Financial crisis, increasing unemployment (8.5% as at march, 2009 (United States Department of Labour, 2009 about 2 million jobs lost this ECONOMIC year (CNN Moneyb, 2009)), reduced disposable income, CPI is 1.8% (excluding food and energy (CNN Money, 2009)), fuel prices SOCIOCULTURAL Changes to smaller fuel-efficient vehicles Hybrid-Electric Vehicles, propulsion technology, TECHNOLOGICAL teleconferencing/IT/telecommunications development End-of-Life Vehicles Directive, a cap-and-trade system for carbon ENVIRONMENTAL emissions (Financial Timesb, 2009) Employment law (health and pension expenses), Laws prohibiting sales LEGAL of vehicles directly without a dealer (Globeandmail, 2009)


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