International Expansion Strategies in the Automobile Industry

International expansion strategies in the automobile industry

A firm evolves its international entry strategy from exporting to more expensive types, including wholly owned subsidiaries (Dess, Eisner and Lumpkin, 2008, P.252).

Exporting

Many automobile manufacturing firms begin their international expansion as exporters then later switch to another strategy for serving a foreign market. In August 1957, two Toyota Crown sample cars arrived at Los Angeles, becoming the first Japanese passenger cars ever exported to the United States (Isabel, 2008). Producing car in USA entails limited risk, expense, and knowledge of foreign markets and transactions, most firms prefer exporting as their primary foreign market entry strategy (Cavusil, Knight and Riesenberger, 2008, P.363). Japanese used exports as a large global business which deals in the export of used cars and vehicles from the Japanese domestic market to numerous markets around the world (Tokyotomo, n.d.).

On the other hand, transportation cost is likely to reduce the probability of exporting cars to a certain extent of subsequent exports (Naudé and Matthee, 2010). The transportation cost for vehicles is decided by the sizing and weighting of the vehicles (Ghelani, n.d.). Because automobiles weigh a lot, thus, they are shipped over a large distance, their transportation costs account very high. In addition, trade barriers have a direct impact on automobile exporting. Import tariffs are important for a country to protect its domestic automobile companies. USA created import barriers to against the growth of Japanese vehicle imports (Chung, Mitchell and Yeung, 2003). Thus, many carmakers started other expansion strategies around the world.

Joint venture

Joint ventures provide a rapid way of expanding the geographic scope of a business (Yip, 2003, P.82). In today’s automobile industry, establishing joint venture between automakers is common (Culpan, 2002, P.118). Even big players such as GM, Ford, Toyota, and Volkswagen have established joint ventures to enhance their production capability and learning as well as diffuse technologies. The partnership enables automakers to share the risks as well as the potential revenues and profits. Both American and Japanese automobile firms have received benefits from the joint venture between American and Japanese automobile manufacturers (Wassink and Carbaugh, 1986). A widely publicized international joint venture was General Motors and Toyota Motor Corporation. General Motors' announced goal was to learn the Japanese art of management and small-car manufacturing by getting a first-hand look at how Toyota organizes its operations, motivates its workers, and locates machines and materials (Wassink and Carbaugh, 1986). For Toyota, this represents a relatively