Important elements of the automobile industry
The first important element of the automobile industry structure is the interconnection between internal and external organization, because they affect the power of suppliers and buyers and improve the firms competitiveness. The case in point is how Japanese automobile companies caught up with the erstwhile Big Three- General Motors (GM), Ford, and Chrysler. Adams and Brock (2002) stressed that the internal and external organization dynamics for the American Big Three served to subvert innovation efficiency (p.48).
The Big Three became complacent in their industry, while follower companies decided to aggressively pursue innovation (Adams and Brock 2002, 48). Japanese automobile makers experimented on innovations such as the front wheel drive, disc brakes, fuel injection, fuel-efficient engines, and compact minivans (Adams and Brock 2002, 48). At first, there was no alarm caused, because according to Porters (1979) theory of industrywide or shared asset profit determination, which states that profit determination may vary across firms, but within a growing industry, it is possible that the leaders profit growth also impact the profit growth of followers. This is because of the exploitation of differences within the industry that lead to competitiveness.
Long-term complacency in the part of the Big Three, however, crumbled its innovation capacity. Japanese automakers, in turn, improved internal and external organization relationships to improve product development and customer service, as well as to optimize the supply chain management system (Adams and Brock 2002, 48). Even when these Japanese companies operated abroad, the case studies of Majek and Hayter (2008) showed the continuous innovation that Japanese companies pursue. In their case studies, Japanese hybrid automobile plants depicted the concept of hybridization, wherein best practices are not automatically standardized, and instead, hybrid plants capture local knowledge from diverse stakeholders that convert foreign practices to practices that are appropriate to local cultures. This made these plants more competitive than if best practices are directly adopted, and so innovations lessened the power of suppliers and buyers, by using their input to improve production processes and product development.
The second important element of the automobile industry structure is the number of players and their size, because they affect the firms competitiveness. Studer-Noguez (2002) argued that the concentration of the industry will affect the accessible strategic options for players, both existing and incoming (p.8). The theory of shared asset profit determination also asserted that when there is top-end concentration, leaders profits increase (Porter 1979, 221). However, if there are also mobility barriers for follower firms, they can also protect their profits and find them increasing also (Porter 1979, 221). In the case of the Japanese firms, when they were still followers, they also created mobility barriers through producing innovations and technologies, which cannot be easily imitated by other companies. They then flooded the American automobile market with more fuel-efficient cars that effectively stunned the growth of the Big Three (Adams and Brock 2002, 48).
The American automobile industry has diverse elements that affect its competitiveness. This paper argues, through the use of case studies and economic theory, that the two most essential elements of the automobile industry structure are the interconnection between internal and external organization and the number of players and their size, because they mediate the power of suppliers and buyers and improve the firms competitiveness. These are important elements that depict the critical need for innovation, collaboration, and knowledge management, for the achievement of efficiency and effectiveness in the American automobile industry.