Foreign Market Entry Strategies Thesis

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Foreign market entry strategies: GM

Foreign Market Entry Strategies

General Motor's foreign market entry strategies: China and Germany

General Motors (GM) is perhaps one of the most criticized companies in America today. Yet, for much of the company's history, it was said 'as GM goes, so goes the nation,' because GM was the biggest automotive company in the world and an American economic powerhouse. However, in the 1980s, GM began to lose its once-deft touch. It began to expand its brands too quickly and did not support its existing fleet of brands with effective marketing. It was also burdened with heavy administrative costs: "GM gave in to union demands in 1990 and created a program that paid workers even when plants were not running, forcing it to build cars and trucks it could not sell without big incentives" (GM, 2009, the New York Times). Plus, it also had to pay workers hefty overtime bonuses, and provide extensive healthcare and pension benefit packages to retirees as well as to current employeesDownload full Download Microsoft Word File
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TOPIC: Thesis on Foreign Market Entry Strategies Assignment

By 1994, the once-great American company's market share was only 33% of the world automotive market and its Japanese competitor Toyota was nipping at its heels. GM regained some foothold in the American market by focusing on large SUVs, most notably the massive Hummer brand that came to symbolize the entire American auto industry's wastefulness. Ironically, in 1999, the company had introduced a prototype electrical car known as the EV1 but abandoned it when it failed to show an immediate profit. When the price of gas reached $4 a gallon in 2007, GM would come to regret that decision. In 2008, Toyota became the world's largest car manufacturer, thanks in part to its successful marketing of the Prius, a hybrid electric-gas vehicle. The credit crisis in 2008 further hampered consumer interest in GM. American consumers had trouble obtaining financing for new cars, period, and they were certainly not interested in buying from a company with a shaky financial record. When Rick Wagoner, GM's chairman went to Washington to ask for $7.5 billion to support $25 billion in loan guarantees and promised to make more fuel-efficient cars, Wagoner's choice of a corporate jet as a mode of transportation drew fire. Soon, Wagoner was forcibly ousted by President Obama. GM proceeded speedily through bankruptcy and abandoned its Hummer brand as well as other unprofitable models (GM, 2009, the New York Times).

While GM's market share has fallen to 20%, there are some hopes for its improved financial health on the horizon. For example, the Chevy Volt, GM's new electric car can travel distances of up to 40 miles on a full charge. Also, although it has been floundering domestically, GM has shown some signs of international strength, most notably in the emerging market of China.

Research question

Can GM's use of foreign markets save the company?

First market: China

In China, GM has been showing unprecedented strength. "Heading the list of the top 10 brands" in China "is Shanghai GM, the joint venture between Shanghai Auto and General Motors, with sales of 500,000 units" (Hu 2008). Also, unlike other areas of the world, car ownership is growing exponentially in China. Car sales growth in China, "which overtook the United States in January to become the world's largest auto market" did slow "to a single-digit rate in 2008 for the first time in at least 10 years as consumer confidence waned in a slowing economy" (Gas free, 2009, China Daily). But the government has taken steps to bolster demand, and the potential for expansion is still far greater than in the U.S. The market is far from saturated, as it is in much of America and Europe: China's emerging middle class and a lack of a used vehicle market means that interest in new cars continues to increase, despite the recession and credit crisis.

However, whether this interest is 'green' as well as growing still remains to be seen. After all, environmentalism in China has been notably lacking in terms of the nation's production methods. China has been widely criticized for its under-regulation of corporate entities in terms of environmental waste and hazards. In the developing world, increasing prosperity rather than reining in consumption has been the focus. "Creating an emission-free vehicle market is unlikely to be a priority for China. While China has made much progress in setting standards regulating vehicle emissions, it has not gone as far as providing incentives for individual buyers of the expensive but low-polluting cars" (Gas free, 2009, China Daily). China, while it is the fastest growing major market for vehicles, "is also the world's largest emitter of greenhouse gases (Gas free, 2009, China Daily).

International criticism and demand for environmentally-friendly policies may act as an incentive for the government to encourage the deployment of vehicles such as the Chevy Volt and other hybrids. But GM has competition for electric cars within China from Chinese manufactures. For example, BYD is China's biggest maker of rechargeable batteries and "aims to more than double its vehicle sales this year to 400,000 (Ying & Holm 2009). BYD is also the seventh-biggest carmaker in China and started selling a plug-in electric hybrid car in December, called the F3 dual-mode or F3DM, which charges through a conventional home outlet (Gas free, 2009, China Daily). If GM wants to continue to hold onto his Chinese market share, competing with BYD is essential, as new Chinese car buying habits and expectations are shaped.

For GM, its current partnership with Shanghai GM has proven lucrative, showing that a joint venture is likely to remain the path for GM into this emerging marketplace for vehicles. For the commercial sector at least, "China stepped up its support of green vehicles in January, offering up to 500,000 Yuan in subsidies for companies and agencies purchasing electric vehicles for fleet use" (Gas free, 2009, China Daily). And an advantage that marketing a hybrid of electric vehicle in China might convey to GM is the fact that the lithium batteries used in such vehicles are already manufactured largely in Asia, although GM has promised to make the batteries for the Volt designed for the American market in Michigan (Wald 2009). The challenge for GM will be to contain costs and to effectively deploy its partnership with the domestically-based Shanghai automotive company and other Chinese companies. Creating more affordable vehicles as well as convincing consumers that the initially greater outlay cost of a hybrid is necessary. The advantage GM has in China when selling its hybrids is that an appetite for large gas-guzzling cars has not had a chance to fester for nearly a century, as was the case in the U.S.

Second Market: Germany

Even though China does not provide direct financial incentives for consumers who go green -- Europe does: "providing incentives for individual buyers of the expensive but low-polluting cars" (Gas free, 2009, China Daily). However, the heavy tax upon directly imported vehicles into EU countries makes a traditional export/import model of operations into the region questionable. Joint ventures with European companies do hold some promise, given that Europe has lagged behind in the development of hybrids: "Only a few years ago, many of the big names in European cars were opposed to the development of hybrid vehicles. BMW first rejected work on hybrid technology because it favored spending its Research and Development budget looking even father forward to hydrogen cell vehicles. VW took the same position, with the exception that it believed diesel would be the future of the company rather than hydrogen or hybrid technology" (Jason 2009). German companies like VW and BMW, which also tended to build larger and less fuel-efficient cars than even their British or Italian counterparts, were especially dismissive of the potential of hybrid technology.

As diesel fuel no longer looks like it will be the 'way of the future,' European companies are scrambling to make up for lost time and develop hybrids. As GM has been developing its hybrid technology already, but could use the financial and marketing support of a European network, entering into a joint agreement to sell hybrid cars would be valuable for its future fortunes. The use of a joint venture in Germany would also enable GM to explore some specific regional interests in hybrid diesel-hybrid vehicles, and plug-in electric car technology. German company's failure to devote resources to hybridization could increase their willingness to take a chance on entering into a joint venture with GM. They could take advantage of GM's extensive research and development into the Chevy Volt.

Conclusion

For GM, expanding its international outreach and engaging in joint partnerships internationally is essential. It must transform its image into that of a green company, and find new customer bases now that the U.S. demand for automobiles is contracting, and likely to falter for years into the future. In China, demand remains strong given the lack of car ownership amongst an emerging middle class. In Germany, a lack of research and development into hybrid technology until… [END OF PREVIEW] . . . READ MORE

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