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Home arrow Management arrow Strategic Management in the 21st Century. Corporate Strategy

The Post-Equilibrium Era

As noted earlier, environmental crises can disrupt competitive equilibrium. The highly profitable domestic equilibrium phase of the U.S. automobile industry was fractured in the early 1970s, as instability in the crude oil market compromised the supply of gasoline and led to consumers questioning their loyalty to the "Big Three." For the 40 years prior to this, the industry had consisted of the "Big Three," whose profits were typically robust and relatively consistent, followed by the smaller American Motors and a number of small and competitively insignificant independent carmakers. The limited availability of gasoline that resulted from the oil embargo and price controls disrupted this equilibrium by motivating consumer acceptance of smaller and more fuel-efficient Japanese automobiles, thus opening the door to foreign competitors. Consumer preferences were now misaligned with the traditional strengths of U.S. car makers that had been developed over the prior five decades (namely, differentiation based on styling, lifestyle, and luxury). Instead, consumers placed greater emphasis in purchase decisions on value, which played to the strengths of Japanese brands that were produced using a volume orientation.

Because of their skills in implementing this volume orientation, Japanese competitors entered the U.S. market from a low-price, high-value position. U.S. producers, with their margin-focused MVD approaches, were too entrenched in the "more car per car" mentality to respond. As a result, U.S. car makers willingly ceded the low-price segment of the market to the Japanese firms, based on the perilously erroneous assumptions that Japanese cars were of poor quality, the market segment comprising price-sensitive buyers was small, and Japanese entrants would be unable to later broaden their appeal to higher-margin market segments. As a result, U.S. hegemony in both domestic and global automobile markets began to deteriorate, leading to a more competitive environment for all car producers, characterized by increasing complexity and risk.

Subsequent to their entry into the U.S. market in the 1970s, Japanese car makers gradually moved upmarket by shifting from pure VO approaches to more profitable MVD strategies. Following the example set by their U.S. rivals five decades earlier, they offered more variety, higher-end options, and eventually introduced luxury brands such as Acura, Infiniti, and Lexus. Beginning in the mid-1980s, Korean producers emulated prior Japanese successes, first entering the U.S. market using a volume orientation and a low-price market position but, by the first decade of the 21st century, adopting many aspects of MVD strategy. Today, low-priced Chinese-made automobiles such as the Chery are poised to enter the U.S. market as Chinese car makers seek to repeat the pattern of market entry using a VO strategy.

The global center of gravity in terms of both automobile production and demand has also shifted. In 2009, China surpassed the United States as the largest automobile market in the world.32 One year later, Chinese companies set an industry record by producing and selling over 18 million cars.33 About half of these were produced through joint ventures with established foreign companies such as Toyota and General Motors, but the rest represent the solo efforts of Chinese firms such as BYD Auto, Chery, and Great Wall Motor. Most of these efforts have utilized a VO strategy, but as the domestic Chinese market becomes more saturated, these companies will likely transition toward adopting MVD approaches. India is also rapidly emerging as one of the world's largest producers and consumers of automobiles, with companies such as Tata Motors and Chinkara Motors aggressively pursuing strategies based on volume orientation and introducing very low-priced cars into a number of global markets.

 
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