02.14.08

GM and its upside down international strategy

Posted in Strategies, Clean Technology, Exchange Rates at 5:30 am by Administrator

GM posted this week a record loss of $722 million for last quarter. But digging into it further the loss was from the sagging North American operations where the company is rapdily losing market share to Toyota, Honda and other international manufacturers. For 2007, GM’s revenue was flat in North America compared to the 50% gain in Latin America and 20% growth in Asia Pacific. The company continues to lose automotive U.S. market share–falling from 23.6% in 2006 to 23.1% in 2007. GM barely held on to its title as the largest automaker in the world, beating Toyota by just 3,000 vehicles.

This result came at a time when the dollar was at record lows against the Euro and was relatively weak against the Yen. Yet international carmakers figured out how to cut prices of exports to the US. Most of the international auto makers also have operations in the US and they also managed to profit despite the rise in prices for imported components due the weaker dollar.

GM, like most US manufacturers, exports relatively few cars. It chose a strategy after the Second World War of having local assembly or manufacture. In fact, GM cars in Europe bear little resemblance to the ones produced in the US. There is some sourcing of parts from the US but most of the content is local.

Over the past two decades, GM and Ford international operations have been more efficient and profitable than the domestic counterparts. But it leaves the auto makers unable to take advantage of a weak dollar since they export little. On the other hand, when the dollar is strong, imports are more competitive.

The US automakers have vigorously fought the new high fuel efficiency standards. They now must retool to produce more efficient engines. The international manufacturers, particularly the Japanese, have already made the investments in clean technology.

GM has much to do with ”right-sizing” its domestic operations. It also faces challenges in “greening” its fleet. However, if the company loses such money in weak dollar environment, watch out if the dollar suddenly strenghens.

Sphere: Related Content

Permalink Comments

01.08.08

Japan’s Consumer Still Reluctant to Spend

Posted in Strategies, Economic Analysis, Marketing at 4:13 am by Administrator

Mark Fuller and John Beck posit in their book “Japan’s Business Renaissance” that Japan’s economy turned a corner the early part of this decade thanks to business restructuring and increased willingness of consumers to spend. Certainly the prime example of restructuring is the automove industry with innovative leaders like Toyota (now number two worldwide) and Honda. The Japanese automakers have done well in creating new products and being at the forefront of clean technologies like hybrids and fuel efficient cars. The innovation has not paid off in stimulating greater purchases by Japanese consumers. Today the AP carried the following story:

TOKYO (AP) — Japan’s domestic auto sales fell to a 35-year low last year as the nation faced high gasoline prices, limited income growth and shrinking demand, an industry group said Monday.

Sales of new cars, trucks and buses declined 7.6 percent to 3.434 million vehicles in 2007, the Japan Automobile Dealers’ Association said in a statement. The figures do not include sales of minicars and minitrucks.

The result, which marked the fourth straight annual decline, was the lowest since 1972, when sales totaled 3.406 million vehicles.

The data showed that the world’s third-biggest auto market is slow to respond to efforts by some Japanese car makers to spark local demand by boosting their offerings of new models. Japan’s largest automaker, Toyota Motor Corp has introduced nine models since last May but estimates a 6 percent drop in its domestic sales in 2007.

The nation’s new vehicles sales in December alone fell 7.1 percent from a year ago to 236,142 vehicles, down for the first time in three months, the association said. And the outlook for the domestic market remains gloomy.

Another industry group, Japan Automobile Manufacturers Association, has put its domestic sales forecast for this year at 3.427 million vehicles - excluding minivehicles - down 0.2 percent from sales for 2007.

Clearly the Japanese consumer, unlike its US consumer, is not willing to spend. The stagnant will reinforce the strategies of Japanese car makers to expand internationally and to pressure for a weaker Yen versus the dollar. In any event, Japan’s economy remains tied to export success given the weakness of internal demand.

Sphere: Related Content

Permalink Comments

12.05.07

Is China headed for a post-Olympics slowdown?

Posted in Strategies, Economic Analysis, Exchange Rates at 8:58 pm by Administrator

At the annual Business Climate Finance Outlook of the German American Business Association of California (www.gaba-network.org), Robert Prion of Citi Private Bank noted that his bank had lowered world economic growth estimates because of the US home mortgage crisis and because of an expected slowdown in China after the Olympics.

In China, the economy remains overheated, in part due to the dollar-pegged exchange rate. Because it is a non-reserve currency and is running a huge trade surplus, the Bank of China has had to undertake major sterilization operations to stop the money supply blowing up because of potential injections of dollars into the Chinese economy. The Chinese authorities have avoided taken the necessary adjustments (allowing the Yuan Renminbi to appreciate or significantly raising interest rates). (It should be noted that the government consolidated all credit decisions last week — a good first step.) However it appears that Beijing wants to wait until after Olympics to apply the brakes.

This is very reminiscent of what happened in Spain during their Olympic year of 1992. I was the economic attaché at the US Embassy during this period. The Spanish had pegged the peseta to the Deutsch Mark in the 1980’s and pumped up the economy with a major public works program to build infrastructure for the Olympics. (Spain was one of the fastest growing countries in the world in the 1980’s.) Shortly after the Olympics finished, Felipe Gonzalez took the necessary corrective actions, which led to his losing power to Aznar.

So in terms of strategy, my advice would to be to plan for a weaker Chinese market and an appreciation of the Renminbi.

What are your thoughts?
Sphere: Related Content

Permalink Comments

12.02.07

What are the international business implications of the proposed higher fuel efficiency standards for the US market?

Posted in Strategies, Clean Technology at 6:26 pm by Administrator

My fellow board member on Clean Tech Bay, Olaf Groth (http://www.linkedin.com/in/olafgroth) sent around a provocative question about what would be the impact of higher auto fuel efficiency standards. One point that he made was that he felt that despite the efforts of the auto makers to fight the standards that the efforts of the Western states would lead to the higher fuel efficiency and that in any event people will drive fewer conventionally powered cars in the future.

What would be the implications for international business?

My guess is that US car makers would be the least agile in responding to shifting market demand and that the Japanese would be come out best. The German auto makers have not responded much to higher fuel efficiency but have shown a better track record of accomodating market demands.

With more non-conventional cars and with better fuel efficiency, oil demand will gradually drop. This will shift back again the advantage to non-oil exporting countries and allow greater consumption by consumers.

If there are breakthroughs in electrical storage, electric cars will have a tremendous advantage - fewer parts, lighter, maybe eliminating transmissions, etc. This will eliminate the traditional barrier to entry (a expensive motor and transmission) for existing manufacturers (note each has the word motors in their company name - Ford Motors, General Motors, Toyota Motors, Bayrische Motor Werke,). With those barriers gone, we may see new entrants to the market (China, India, Google Auto? )

For those on the venture capital side, I’d be looking for innovations in storage technology and electric motors/controls. Those won’t necessarily come from the US, but anywhere in the world.

What do you see as the implications?

Sphere: Related Content

Permalink Comments

11.30.07

How to take advantage of the weak dollar

Posted in Strategies, Economic Analysis, Exchange Rates at 5:03 am by Administrator

The economic laws of supply, demand, expectations and speculation work in the long run - it’s just that its sometime difficult to predict when the long run will occur. The mistakes of US economic policy over the past ten years (tax policy that gives incentives to spending over investing, large federal deficits, an energy policy that encourages petroleum imports, lax regulation of the mortgage market to name a few) have caught up with the US. We’re now facing a probable recession that will take several years to work through. One by-product is that the dollar has weakened substantially and it is part of the self-correcting nature of the markets. (The increase in exports helps expand the economy and jump start consumption.)

If your products are denominated in dollars, now is the time for your business to look at international markets. There are some short term profits that can be made solely on the basis of price and you can find those opportunities relatively easily. The mistake that many international business managers make is not following up on the low price “teasers” made possible by the favorable exchange rate. Take advantage of the opening by strengthening your international market presence: you should identify your customers, work as appropriate with distributors or local representatives and find ways to differentiate your produce/service from the competition in that market.

A recent study by the San Francisco Federal Reserve found that the export boom ended when the Fed raised interest rates as the economy matured. Thus, in your market strategy, use the opening to gain new markets and keep a close watch on the Fed’s interest rate policy (particularly the differential with the Euro rates). When the rates change direction, that is the time to work aggressively to keep the international markets.

You’ll find that if you can establish your product through weak and strong dollars, you will have a corporate strategy that will get allow you to weather weak domestic markets by expanding exports.

What is your stategy to take advantage of the weak dollar?
Sphere: Related Content

Permalink Comments

10.21.07

Why Approach International Business Strategies By Asking Questions?

Posted in Strategies at 5:43 pm by Administrator

Think of international business like playing three dimensional chess. For domestic business, the two axes are business culture and the country’s legal system. You know the moves, what is allowed and how to create a winning strategy. Going international immediately moves you into new business cultures and legal systems. You can develop new strategies but it requires careful calculation.

Adding to the challenge is the fact that international business is changing daily. Having a fixed reference is no longer adequate. Think about visiting your doctor - s/he can’t possibly keep up with the tsunami of new medical discoveries. You, as the patient have to be proactive and learn to ask the right questions to ensure you are getting the right answers.

This blog is predicated on the belief that the way to approach international business strategies is by knowing the right questions to ask. Once you know what to ask, you can use the resources of the web and networkign to find the best answers and experts. I want to use this blog as a platform to not only pose questions but also to suggest resources by drawing on the resources of the professionals in the field.

I encourage you to post responses to the topics and to send me suggestions for topics to be covered. E-mail me at questions@clynchinternational.com

Best regards,

Chris Lynch
Sphere: Related Content

Permalink 1 Comment

Questions for International Business Blog

02.14.08

GM and its upside down international strategy

01.08.08

Japan’s Consumer Still Reluctant to Spend

12.05.07

Is China headed for a post-Olympics slowdown?

12.02.07

What are the international business implications of the proposed higher fuel efficiency standards for the US market?

11.30.07

How to take advantage of the weak dollar

10.21.07

Why Approach International Business Strategies By Asking Questions?

Pages

Archives

Categories

Search

Meta