This thesis analyzes and evaluates current macro-environmental trends in the German automotive industry and their evolutionary impact on automotive business models and competitiveness of traditional German car manufacturers.
To enhance the understanding of industry evolution and strategic change, the German automotive business is explored through the lens of market innovations. Drawing upon the industry evolution model of Henderson and Clark (1990), the impact of automotive market innovations on strategies of German OEMs with regard to inter-firm collaborations are classified and analyzed.
For evaluation of motives and strategic fit in cross-industry collaborations, sources and key success factors of inter-firm competitive advantages are elaborated. Synthesizing and refining among others the theories of Barney (2007), Dyer & Singh (1999), and Williamson (1993), new resources as derived from inter-organizational relationships are depicted in terms of competitiveness and their relations to German car manufacturers are discussed.
Identifying the red oceans and the blue oceans in the German automotive industry according to the business model theory of Kim and Mauborgne (2005), four scenarios for the strategic realignment of German OEMs in response to industry dynamics are formulated. Within this scope, modifications of business model elements are elaborated according to the strategy canvas of Osterwalder et al. (2005) and revisions of existing automotive business models are proposed.
Having studied the business model concept as a possible integrator of traditional strategic perspectives on industry evolution and firm performance, the thesis concludes with the insight that in order to capitalize on the emerging automotive trends, German OEMs need to intensify qualitative partnerships as a new source of sustained competitive advantage. Advanced cross-industry collaborations opening up new business opportunities must be addressed by shift of corporate strategy and redefinition of business models for better realignment of firm resources to current industry-transforming parameters thus ensuring long-term profitable growth in an increasingly connected environment.
Table of contents
Abstract
Declaration of Authorship
Table of contents
Distribution of tasks
List of abbreviations
List of figures
1 Introduction
1.1 Motivation of this study
1.2 Research problem and objectives
1.3 Outline of the thesis structure
2 Methodology
2.1 Scientific approach
2.2 Research methods
2.3 Methods of data collection and verification
3 Theoretical Background
3.1 Innovation and industrial change
3.1.1. Innovation types and industry evolution models
3.1.2. Innovation and industry life cycle models
3.2 Business models and strategy
3.2.1. Business model definitions and key components
3.2.2. Blending the business model concept with strategy
3.3 Firm performance and collaboration
4 Outline of the German Automotive Industry
4.1 Market overview and recent developments
4.2 Specific characteristics of the German automotive industry
4.2.1 Value chain design
4.2.2 R&D infrastructure
4.2.3 Education, Tax and Location Factors
4.3 Market fragmentation of major German OEMs
4.4 Current automotive mega trends
5 Industry evolution and strategic change
5.1 Sources of market innovations
5.2 Nature and types of market innovations
5.3 Initiation and motives for strategic change
5.4 Impact of strategic change on industry profit pools
5.5 Summary and conclusion
6 Sources of competitive advantage
6.1 Analysis of inter-organizational relationships
6.2 Evaluation of motives and strategic fit in collaborations
6.3 Assessment of new resources in terms of competitiveness
6.4 Summary and conclusion
7 Strategic realignment of German OEMs
7.1 General changes in business strategy
7.2 Red Oceans and Blue Oceans in the German automotive industry
7.3 Developing Blue Ocean strategies for German OEMs
7.4 Summary and Conclusion
8 Revised business model proposition for German OEMs
8.1 Modifications of business model elements
8.2 Revision and amendment of existing business models
8.3 Challenges and key success factors of new strategies
8.4 Summary and conclusion
9 Conclusion and perspectives
9.1 Findings and implications
9.2 Recommendations for future research
Appendices
Appendix A. Template executive’s survey
Appendix B. Template customer’s survey
Appendix C. Business model literature overview
Appendix D. Research on Global Development Times
References
Abstract
This thesis analyzes and evaluates current macro-environmental trends in the German automotive industry and their evolutionary impact on automotive business models and competitiveness of traditional German car manufacturers.
To enhance the understanding of industry evolution and strategic change, the German automotive business is explored through the lens of market innovations. Drawing upon the industry evolution model of Henderson and Clark (1990), the impact of automotive market innovations on strategies of German OEMs with regard to inter-firm collaborations are classified and analyzed.
For evaluation of motives and strategic fit in cross-industry collaborations, sources and key success factors of inter-firm competitive advantages are elaborated. Synthesizing and refining among others the theories of Barney (2007), Dyer & Singh (1999), and Williamson (1993), new resources as derived from inter-organizational relationships are depicted in terms of competitiveness and their relations to German car manufacturers are discussed.
Identifying the red oceans and the blue oceans in the German automotive industry according to the business model theory of Kim and Mauborgne (2005), four scenarios for the strategic realignment of German OEMs in response to industry dynamics are formulated. Within this scope, modifications of business model elements are elaborated according to the strategy canvas of Osterwalder et al. (2005) and revisions of existing automotive business models are proposed.
Having studied the business model concept as a possible integrator of traditional strategic perspectives on industry evolution and firm performance, the thesis concludes with the insight that in order to capitalize on the emerging automotive trends, German OEMs need to intensify qualitative partnerships as a new source of sustained competitive advantage. Advanced cross-industry collaborations opening up new business opportunities must be addressed by shift of corporate strategy and redefinition of business models for better realignment of firm resources to current industry-transforming parameters thus ensuring long-term profitable growth in an increasingly connected environment.
Declaration of Authorship
We confirm that this master thesis is our own work and we have documented all sources and material used. This thesis was not previously presented to another examination board and has not been published.
Distribution of tasks
This master thesis was written by two authors. The following overview presents the distribution of tasks in respect to the individual chapters of the thesis.
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List of abbreviations
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List of figures
Figure 1 Structure of the main research questions
Figure 2 Overall thesis structure
Figure 3: Comparison of industry evolution models
Figure 4: Trajectories of industry change adapted from McGahan (2004)
Figure 5: Business Model Components adapted from Shafer et al. (2005)
Figure 6: Nine Business Model Building Blocks adapted from Osterwalder et al. (2005)
Figure 7: Possible overlap between the concepts 'strategy' and 'business model' (Seddon et al., 2004)
Figure 8: The VRIN framework adapted from Barney (1991)
Figure 9: Annual balance of new passenger car registrations (numbers in 1.000) (VDA, 2014c)
Figure 10: Development of mobility costs (VDA, 2014c)
Figure 11: German automotive value chain
Figure 12: Market fragmentation by manufacturing countries measured by new car registrations in % (VDA, 2014c)
Figure 13: Market fragmentation of German OEMs by new car registrations (Kraftfahrtbundesamt, 2013)
Figure 14: Market fragmentation of German OEMs by sales volume (VW, 2014; BMW, 2014; Daimler, 2014)
Figure 15: Mega trends in the German automotive industry
Figure 16: Application of Henderson and Clark’s (1990) industry evolution model to the German automotive industry
Figure 17: Factors deterring consumers from buying an electric car
Figure 18: Proportion of consumers that need to own a car (by age group)
Figure 19: Strategies for future success for retailers/dealers
Figure 20: Sources and key success factors of inter-firm competitive advantage
Figure 21: The new resources in inter-firm collaboration (the VRINCO concept)
Figure 22: Potential future shape of the automotive industry
Figure 23: Key industry trends up to 2024
Figure 24: When will mobility solutions become an important source of profit?
Figure 25: TOWS Analysis of German OEMs
Figure 26: Confrontation Matrix for developing strategies for German OEMs
Figure 27: Business strategies considered important for future success
Figure 28: Application of McGahan model to German automotive industry
Figure 29: Red Oceans vs. Blue Oceans in the German Automotive Industry adapted from Kim & Mauborgne (2005)
Figure 30: 3 Tiers of Non-customers of German OEMs (application of the Blue Ocean Strategy adapted from Kim and Mauborgne (2005)
Figure 31: Major Automotive Scenarios of the Future (application of Osterwalder’s (2010) model)
Figure 32: Business Model Environment (Osterwalder, 2010)
Figure 33: Macroeconomic Forces Shaping a New Business Model for the Automotive Industry (application of Osterwalder’s (2010) model)
Figure 34: Macroeconomic Forces Shaping a New Business Model for the Automotive Industry (application of Osterwalder’s (2010) model)
Figure 35: Market Forces Shaping a New Business Model for the Automotive Industry (application of Osterwalder’s (2010) model)
Figure 36: Industry Forces Shaping a New Business Model for the Automotive Industry (application of Osterwalder’s (2010) model)
Figure 37: Key Trends Shaping a New Business Model for the Automotive Industry (application of Osterwalder’s (2010) model)
Figure 38: Factors influencing purchase decision
Figure 39: The ERRC grid for German OEMs
Figure 40: Business Model of German OEMs AS –IS (application of Osterwalder’s (2010) model)
Figure 41: The ERRC grid for German OEMs in relation to the trends of connectivity and demotorization
Figure 42: Reshaping OEMs’ Business Model (application of the Blue Ocean Strategy by Kim and Mauborgne (2005) and Business Model Canvas approach by Osterwalder (2012) in regard to the trend of demotorization
Figure 43: Reshaping OEMs’ Business Model (application of the Blue Ocean Strategy by Kim and Mauborgne (2005) and Business Model Canvas approach by Osterwalder (2012) in regard to the trend of connectivity
Figure 44: Reshaping OEMs’ Business Model with Open Innovation Approach (application of the Blue Ocean Strategy by Kim and Mauborgne (2005) and Business Model Canvas approach by Osterwalder (2012)
Figure 45: Final Revised Business Model for German OEMs (application of Osterwalder’s (2010) model)
1 Introduction
This chapter serves to outline our motivation for writing this master thesis on the impact of automotive trends on the German car manufacturing industry. Further presented is a definition of the research problem and the objective of this thesis. Lastly, the thesis structure is introduced.
1.1 Motivation of this study
Our motivation for writing this master thesis is derived upon the perception of the emergence of macro-environmental trends which have an evident effect on existing business models of traditional German OEMs (IBM, 2008; Arthur D. Little, 2009). Since for the first time in automotive history, stakeholders from outside the industry are taking actions to profit from Germany’s most important economic pillar, the impact of current trends on the development of cross-industry collaborations presents an inspiring field of study.
With both thesis authors having worked in automotive consulting recently, we view our practical experiences in the automotive sector in combination of our theoretical knowledge on academic strategy literature as a sound basis for the development of this master thesis. Taking a practical approach in applying and integrating traditional strategic models and theories, we want to depict and evaluate the implications of recent automotive trends on the German automotive market in order to gain new insights on an industry that is currently subject to change in Germany.
Especially the rise of demand for new business models resulting from the restructuring processes within an industry which is currently re-inventing itself, presents a promising field of research. Since business model theories present a fairly young academic territory, they appear exceedingly suitable for further investigation. Moreover, the business model concept allows for a diverse exploration and implementation of strategic tools and theories making the study relevant for both, academic and practical appliance.
1.2 Research problem and objectives
Classic views of the role of conventional OEMs within today’s car manufacturing industry value chain are increasingly relegated to the past. The traditional OEM business model which is based upon turnover predominantly generated from pure vehicle sales is undergoing radical paradigm change as value creation profits continue to deteriorate (Bain & Company, 2011).
Not only are modern customers more discerning in their car-buying behavior, but augmented driver expectations fueled by technological innovations, rising environmental consciousness and a plethora of vehicles have created a congested market place. As a consequence, OEMs are finding themselves in an ever intensifying rivalry over the latest technological features required to stay ahead of competition (Strategy&, 2012).
Furthermore, the role of technological pioneering in the automotive industry historically preserved to the OEMs, is more and more shifting to the side of suppliers. Since technological advancements are particularly taking place in the area of connectivity, an increasing number of firms from outside the industry is joining the German automotive market. As a result, car manufacturers are progressively entering into cross-industry partnerships to gain access to new technologies and capabilities (IBM, 2015; Strategy&, 2015).
While the reasoning for and potential benefits of inter-firm collaborations are well reflected in the current field of research already, most studies and literature focus on intra-industry networking (Lavie, 2006; Hagedoorn, 2002; Dyer and Singh, 1998; Gulati, 1995; Williamson, 1993; Nooteboom, 1999; Das and Teng, 2000; Eisenhardt and Schoonhoven, 1996). Regarding the collaboration of firms across industry boundaries, the field of literature becomes limited (Gassmann et al., 2010). In fact, resource-sharing with market participants outside the traditional industry is mostly perceived a threat rather than an opportunity (Stuart, 1998; Mowery et al., 1998; Penner-Hahn & Myles Shaver, 2005).
Taking the current developments in the German automotive industry as an example, this thesis aims at providing additional insights on inter-firm collaboration with a special focus set on the positive correlations accruing from resource sharing of companies engaged in substantially different industries.
Our main research question derived upon the outlined research gap reads as follows:
How can the business model be integrated with traditional perspectives on competitive theories in order to better understand the evolutionary impact of current automotive trends on German car manufacturers?
To structure the main research question, four subordinate research questions have been defined:
(1) How can theories on industry evolution and strategic change contribute to a better understanding of the current market dynamics in the German automotive industry?
(2) Based upon the insights from question 1, how can theories on firm performance supplement our understanding of the effects that the current market dynamics have on firm resources and capabilities as drivers for competitive advantage?
(3) Drawing on the results from question 2, how does the body of literature on business models help us to analyze the strategic realignment of traditional OEMs in Germany?
(4) Relating the research findings of the preceding analyses, how can traditional views on industry evolution and firm performance be integrated with contributions from business model literature into a revised business model proposition for German OEMs?
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Figure 1: Structure of the main research questions
The study objective is intended to address both, practical and academic significance for it first offers a thoughtful overview and critical reflection of research and literature in the field of strategy and business models and secondly synthesizes existing research findings with new industry insights to suggest innovative approaches to a changing market environment.
Within the context of strategic realignment, market innovations and business model revision, the intensification and impact of qualitative cross-industry partnerships is envisioned to present new sources of sustained competitive advantage to German OEMs.
To validate and supplement the relevance and timeliness of research findings in relation to current market dynamics and trends in the German automotive industry, an empirical investigation on both current consumer demand and managerial industry assessment is provided.
1.3 Outline of the thesis structure
Methodically, the study is divided into an exclusively theoretical section (chapter 3) and an overly practical section (chapters 5 to 8). Each chapter is introduced with a short depiction of its purpose and contents providing the reader with a brief summary. Moreover, chapter 4 provides an outline of the German automotive industry to enhance the understanding of current market dynamics.
Regarding the theoretical section of the thesis, the broad variety of academic literature and research in the concerning areas of study is introduced and critically reflected. Although the interest of a literature review is to comprehensively analyze all aspects of the relevant field, the domain of strategy is too widespread, diverse and in parts even contradictory, so that presenting all publishing’s is considered improbable. Hence, only key theories and main streams are included as subjects of analysis. Concluding from the findings of the literature review, the most appropriate models and key theory constructs in respect to the developments of the German automotive industry are chosen for further analysis and practical application as conducted in chapters 5 to 8.
Concerning the second section of the thesis, the emphasis is set on the practical application of the theories identified in chapter 3 towards the German automotive environment. Where reasonable, further yet more specialized academic literature and theories are supplementing the core academic concepts allowing a more in-depth exploration of the respective area of analysis. As indicated by the research questions, the structure of the second section of the thesis is guided by four parts embedded in the context of strategy literature and research as elaborated in chapter 3.
Relating to the first sub-question of the thesis, chapter five illustrates the impact which changing environmental conditions have on current industry structures. Referring to literature on market innovation, industry evolution, and strategic change, the sources of industry-transforming innovations are identified and with regard to inter-firm collaborations analyzed. Eventually, the results of the analysis are discussed and their influence on industry profit pools is outlined.
Sub question two which refers to chapter six, examines inter-organizational relationships in the German automotive industry as depicted in chapter five through the lens of firm performance. Special attention is attributed to the elaboration of sources and key success factors of competitive advantage. Moreover, motives and strategic fit in inter-firm partnerships are explored in detail and new resources and capabilities are assessed in terms of their competitiveness for German OEMs aiming at satisfying changing industry demands.
Drawing on the results from the second research question, chapter seven further elaborates and defines the general changes in business strategy of German OEMs by exploring the current market setting of the German car manufacturing industry. Based on these research findings, new business scenarios are derived suggesting prospective strategic realignment of German OEMs for sustained competitive advantage and long-term profitable growth.
The fourth and last part of the thesis interrelates the results from the previous analyses into an amended business model proposition taking into account advanced inter-firm collaboration as a new source of competitive advantage within an intensely transforming industry. After the elaboration of modifications and revisions to elements of the existing automotive business model, the limitations of the proposed final model are discussed.
Starting from an outline and progressing into greater levels of detail, the overall structure of the thesis is visually summarized in Figure 2.
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Figure 2: Overall thesis structure
2 Methodology
This chapter describes the methods guiding this thesis’ conduct of research, analysis and data collection. Each method chosen is succinctly outlined and the authors’ reasoning for applying the respective method is briefly stated.
2.1 Scientific approach
For the examination of the nature of reality concerning the research conducted in this study, assumptions have to be made (Arbnor & Bjerke, 1977). When expressing these assumptions, a scientific approach is chosen suiting the nature and objective of the thesis best. According to Arbnor & Bjerke (1977), there are three potential methods for scientific approaches: the Analytical Approach, the Actor Approach and the System Approach.
Regarding the Analytical Approach, a research problem is broken down into smaller pieces of analysis. The resolution of the single sub-problems ultimately results in the resolution of the main problem. Researchers subscribing to the Actor Approach, perceive reality as a result of actions and reactions caused by individual members of society. The sharing of meaning, interaction and subjectivity are key elements of research. Following the System Approach, research is conducted in a way where the system as a whole is explained by the investigation of its sub-parts. In contrast to the Analytical Approach, the reality of the System Approach assumes that the sum of the sub-parts of the system diverges from the whole of the system. Hence, each sub-part independently affects the system, where the whole of the system is described as a magnitude of components and the relations among them (Arbnor & Bjerke, 1977, p.72).
Since the nature of this thesis demands an exploration of a development from different yet interrelated views, the System Approach was chosen to be most suitable in explaining the system as a whole by investigating the sub-parts of it, where the German Automotive Industry may be considered a system and the different automotive trends its sub-parts.
2.2 Research methods
Research typically refers to the process of acquiring generalizable knowledge which usually does not follow a predetermined path (Eriksson & Weidersheim-Paul, 2011). However, a systematic approach towards the collection and evaluation of material is needed in order to analyze results and draw conclusions accordingly.
The nature of this study demands for research methods that are flexible and deliver results both on a general level to explain global developments as well as on a detailed level to propose concrete recommendations of action. Hence, to perform research necessary to develop this thesis, a holistic perspective towards the conduct of research was chosen. An outline of the research methods selected to develop this thesis is presented in the following.
The overall approach to address research for this thesis was guided by a goal-mean orientation. According to Arbnor & Bjerke (1977), this approach necessities the definition of a purpose for the study depending on which the researcher then gathers information to fulfill this goal. Having decided upon the objectives of the thesis in an early phase (see chapter 1.2), the authors then continued with identifying the necessary means to reach the thesis’ objectives including tools, analytics and research to be used and applied.
According to the thesis’ nature demanding for both, an investigation of existing trends and developments as well as an acquisition and implementation of new knowledge, the research process was further defined by an abductive approach which “serves as an organizing framework within which a variety of more specific research methods can be located” (Haig, 2008, p. 1019). By applying an abductive research process, the gathering and analysis of information was performed from fields of both theories and empirics. The authors chose this method for it allows connections and conclusions being made between these two fields possibly yielding fruitful insights adding to the overall aim of the thesis.
In respect to the scientific approach chosen (see chapter 2.1), the nature of research methods was determined accordingly. While quantitative methods are generally held more appropriate if an analytical approach had been chosen, qualitative methods are deemed more suitable if a system approach had been taken (Arbnor & Bjerke, 1977). Since this thesis follows a system approach, most of the methods for research applied are hence of a qualitative nature. Necessary hard data such as market statistics and financials are however obtained using quantitative research methods.
2.3 Methods of data collection and verification
Quantitative and qualitative data obtained and analyzed for research can be of either primary or secondary nature (Arbnor & Bjerke, 1977).
The information gathering and analysis of our thesis is characterized by the exploitation of predominantly secondary data in the form of market and industry reports, scientific articles and journals, books, websites, and interviews. Given the timeliness of the chosen topic and the authors’ approach of combining present sets of data with well-established scientific literature and theories in order to gain new insights through the re-combination of knowledge, it is believed that the above mentioned sources of secondary data are best suited to provide a comprehensive environment for investigation.
For an empirical testing of data obtained from secondary sources, the thesis’ main arguments and findings are complemented with information characterized by primary data in the form of structured interviews. A structured approach was chosen in order to allow for a direct comparison of secondary data collected through research and primary data collected through interviews. For privacy reasons of interviewees all interview answers depicted in this thesis were anonymized. Within the scope of this thesis, two types of interviews were conducted – executive surveys (template to be found in Appendix A) and customer surveys (template to be found in Appendix B) to ensure full representation of all industry stakeholders.
Regarding the executives’ survey, twenty-five German automotive executives were interviewed. The respondent interviews were held either personally, online via e-mails or by phone. A respondent pool consists of representatives of all components of the automotive value chain including car manufacturers, 1st, 2nd, and 3rd tier suppliers, dealers, financial service providers, rental companies and car sharing providers. As the authors have been working for a long time within different sectors of the automotive industry building up an extensive business network, potentially relevant interviewees were accessible at relative ease. For the customers’ survey, fifty German customers of relevant car brands were chosen. The respondents were interviewed near the points-of-sales. Since both authors have been working in the Global Automotive department of Allianz at this time, existing cooperation with car dealerships allowed for on-site interviews. The survey participants were chosen by gender, income level and age to reflect a balanced picture of Germany’s automotive customer landscape.
3 Theoretical Background
This chapter provides an overview of the literature that builds the theoretical framework of the thesis. Within this context, the concept of innovation and industrial change is discussed followed by an outline of the academic debate on business model theory and its correlation to strategy. Moreover, the topic of firm performance with a focus set on inter-firm collaboration across industry boundaries is explored in detail.
3.1 Innovation and industrial change
3.1.1. Innovation types and industry evolution models
In research literature the definition of innovation most fundamentally comprises the notion of originality accompanied by a form of enactment such as implementation and/or commercialization (Rogers, 1983; Utterback, 1994; Fischer, 2001; Garcia & Calantone, 2002; Pedersen & Dalum, 2004).
More specifically, Freeman (1982, p.109) states that “Industrial innovation includes the technical, design, manufacturing, management and commercial activities involved in the marketing of a new (or improved) product or the first commercial use of a new (or improved) process or equipment”. Analogously Hartley (2006, p.34) defines innovation as “the successful development, implementation and use of new or structurally improved products, processes, services or organizational forms”.
Irrespectively of the phrasing of the individual quote, there is undisputed consensus among theorists that the development of a new idea or concept is not enough; it needs to be actively exploited to be called an innovation.
The first general categorization of innovations was pioneered by Abernathy (1978) who distinguished incremental from radical innovations:
(a) Incremental innovations arise persistently in industries, often encouraged by demand pressures, socio-cultural factors, and the need to lower costs or improve quality, design, performance and adaptability. Incremental innovations present relatively slight changes to the existing product exploiting the potential of the established design. They not often occur as the result of formal research and development activity but as the result of inventions and enhancements suggested by engineers. A single incremental innovation does not exert a strong influence on the industry; however the cumulative impact is substantial and could result in a higher productivity in comparison to radical innovations.
(b) Radical innovations are irregular events and occur in recent times. They are typically the result of basic research and development activities in enterprises or from precise explorations for a technical solution to a recognized market need. Over a longer time period radical innovations may have intense effects on the dynamics of competition among companies. Sometimes they may even result in the emergence of an entirely new industry, in which the new technological system is established. They often comprise a combined product, process and organizational innovation.
Freeman and Perez (1988) built upon the classification of incremental and radical innovations and amended Abernathy’s generic innovation categories by introducing two new categories: systematic innovations and new techno-economic paradigms.
(a) Systemic innovations are far-reaching changes in technology, affecting numerous branches of the economy, as well as may lead to entirely new sectors. They are based on a combination of incremental and radical innovations.
(b) New techno-economic paradigms are expansive and may affect the entire economy. They have a major impact on economic activities such as drastic changes in the general cost structure, strong improvements in products and processes characteristics throughout the entire economy system. They represent changes in technological systems that obviously correspond to Schumpeter’s concept of creative destruction (Schumpeter, 1994).
Taking a closer look on the correlation of technological innovations and their impact on markets, different industry evolution models have evolved. This paragraph compares the three prominent models of Abernathy and Clark (1985), Henderson and Clark (1990), and Tushman et al., (1997). An illustration of these models can be found in Figure 3.
Abernathy and Clark (1985) see innovation separated into two dimensions and draw a two-by-two matrix that they name transilience map. The goal of this map is to display which impact innovations have on the competitive situation in a certain industry. They categorize innovations in terms of their impact on the market knowledge and technical capabilities of the firm by distinguishing between the preservation and destruction of this knowledge and capabilities. When combining these two dimensions four types of innovation arise:
(a) Regular innovation builds on established technological capabilities and is applied to existing markets and customers.
(b) Niche innovation opens new market opportunities by building on established technical competence.
(c) Revolutionary innovation relates to existing markets and customers; but renders current technical competences obsolete.
(d) Architectural innovation occurs if both market and technological knowledge become outdated.
Henderson and Clark (1990) claim that in order to develop new products and thus to introduce innovations, both the knowledge of the components themselves and the correlations between them are needed. The latter is referred to as architectural knowledge.
The new arrangement of component and architectural knowledge yields four types of innovation:
(a) Incremental innovation occurs when both architectural and component knowledge are enhanced at the same time.
(b) Architectural innovation encompasses the reconfiguration of the linkages between components, while relying on the same core technology as existing products, services, or processes.
(c) Modular innovation involves the destruction of component knowledge and the enhancement of architectural knowledge.
(d) Radical innovation is characterized by the destruction of both kinds of knowledge.
Tushman et al. (1997) in line with Abernathy and Clark (1985) classify innovations upon their effect on market knowledge and technical capabilities. Similar to Abernathy and Clark’s categories of “existing” and “destroyed”, market knowledge is considered either “existing” or “new”. Regarding the technology dimension, Tushman et al. (1997) distinguish “incremental” from “radical”. Combining both dimensions in a four-field matrix, four types of innovation can be identified.
(a) Architectural innovation refers to the creation of new markets through an incremental improvement in technology.
(b) Incremental products, service or process innovation describes the application of incrementally improved technologies on existing markets.
(c) Major product innovation includes the launch of a radically modified technology on new markets.
(d) Major process innovation is concerned with a radical technological change on remaining markets.
The authors also propose a fifth type of innovation, which they call generational innovation which symbolizes a transitional stage, where both market and technology are experiencing constant transformations.
As the above outlined theoretical approaches to the classification of innovations show, the economic literature uses different terms to specify the same kind of innovation, and vice versa the same term for different types of innovation. The similarity or heterogeneity in the usage of terms to describe innovation types clearly indicates that the definition of innovation categories depends upon the perspective taken. Whereas the models of Abernathy and Clark (1985) and Tushman et al. (1997) examine and classify innovation types according to their impact on market knowledge and technical capabilities, Henderson and Clark (1990) set the focus on component knowledge and knowledge correlation.
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Figure 3: Comparison of industry evolution models
Especially in today’s information era the connection between and combination of specific component knowledge is supposed to play a major role for innovation. Since our thesis aims at explaining the impact of innovative industry trends by exploring especially inter-firm relationships where the linkage of component knowledge seems fundamental, we will mainly refer to the industry evolution model of Henderson & Clark (1990) in the further course of our industry analysis.
3.1.2. Innovation and industry life cycle models
In addition to the classification of innovation types in industry evolution models, one of the main theoretical approaches explaining how companies and industries evolve by taking into account the concept of innovation is the theory on industry life cycles (Porter, 1980; Porter, 1991; Wang, 2006).
The following paragraph outlines one of the most prominent industry life cycle models as proposed by Abernathy and Utterback (1978) which focuses on the dynamics of innovation in the industry.
By linking together product and process innovation, the model differentiates three main phases, each of them strongly influencing markets and firms with their capabilities and resources needed to cultivate innovation.
(a) The Fluid Phase describes the emergence of a completely new product through radical innovation entering the market. At this stage production costs are high due to frequently necessary changes of product features. As a consequence, competition is purely grounded on product performance, for no dominant design has yet been developed. The priority in this stage is the increase of market-share by product differentiation. This phase is characterized by comparatively low process innovation and inefficient and uncoordinated production processes. Companies within this phase should thrive at establishing their product as the so called ‘dominant design’ which defines the new leading technology in the market.
(b) The Transitional Phase is characterized by the ‘learning period’ where firms aim at better understanding technology applications and fulfilling customer needs. It is the beginning of the appearance of standardizations and thus increasing customer acceptance of the innovation efforts. The merging of both standardization and customer acceptance results in the implementation of a dominant design. Winning the race for the dominant design is desirable since it allows the firm to gain monopoly rents for a certain period of time. Firms situated within the transitional phase begin to pursue strategies that concentrate on increasing production capacity by innovating the production process.
(c) The Specific Phase depicts the strategy shift from a focus on differentiation to a focus on costs after a dominant design has finally emerged. Customer demand moves towards the new leading design and the emphasis is now put on process innovation rather than product innovation because cost efficiencies through scale economies are becoming increasingly important. Competition becomes fierce and the market develops into an oligopoly. As a result, firms begin to compete in standard goods, producing at the lowest cost possible.
McGahan (2004) views the dynamic industry life cycle from a more managerial perspective introducing four life cycle stages which she combines with practical advice on how to adjust corporate strategy according to the changing industry setting.
According to McGahan (2004) industries develop as a result of two kinds of threats of obsolescence: a threat to an industry’s core activities and a threat to an industry’s core assets. Core activities refer to those recurring activities that have historically accounted for the profits of the industry since they were binding customers and suppliers to organizations. Core activities may come under threat if they are losing importance for customers due to a new alternative on the market. Core assets on the other hand refer to a firm’s tangible and intangible resources which render the company unique and are vital for its efficient performance of core activities. Core assets are under pressure if they fail to generate value as they once did. Depending on whether or not the industry’s core activities and core assets are threatened, executives are able to specify the four possible life cycle stages named ‘change trajectories’ the company is currently on (Figure 4). These trajectories which McGahan (2004) classifies into radical, intermediating, creative, and progressive, then serve as a boundary in which companies can prevent losses and generate profits by innovating in line with the respective industry life cycle stage .
(a) A Radical Change occurs when both core competences and core assets are threatened by a new alternative. This is most likely to arise when new technology comes into a market and therefore the current product portfolio and processes become obsolete very fast. According to McGahan (2004) an appropriate strategy for firms may refer to developing new assets or products or exiting the industry.
(b) An Intermediating Change is when a firm’s core activities are threatened but core assets remain valuable. Thus, relationships to current customers and suppliers partly lose strength. An option for strategic change may be entering into new markets and diversifying the product portfolio.
(c) A Creative Change is defined by a firm’s threatened core assets and its unchanged core activities. This industry trajectory is typical for a stable relationship with suppliers and customers and the changing assets.
(d) A Progressive Change is determined by firm’s resources becoming more valuable over the time and firm’s incremental innovative activities. Successful companies placed in this type of industry trajectory have the ability to react fast to the feedback of customers.
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Figure 4: Trajectories of industry change adapted from McGahan (2004)
The above outlined models are both describing how industries change through innovation yet their authors focus on different parameters of change. Whereas the model of Abernathy and Utterback (1978) aims at explaining the dissimilar usage of product and process innovation for the ultimate purpose of introducing a ‘dominant design’, the model of McGahan (2004) is more concerned with the appropriate alignment of innovation strategy towards the different life cycle stages as to increase chances of corporate investments to become profitable.
Since both approaches at explaining industry dynamics do not exclude one another, but in contrast add to a more holistic understanding of the complexity involved when industries experience innovative change, we resolved upon applying both models to our analysis of industry dynamics within the German automotive sector.
3.2 Business models and strategy
3.2.
3.2.1. Business model definitions and key components
Concerning the term business model in academic literature, no universally accepted definition has been found so far (Morris et al., 2005; Zott & Amit, 2005). Although the business model concept is widely debated in today’s business world, a clear definition is rarely found (Chesbrough & Rosenbloom, 2002). However, practitioners and academics agree that a thorough business model is vital to every successful company (Margetta, 2002). A detailed compilation of academic literature on business models is to be found in Appendix C. In this chapter, however, we outline some of the aggregated tendencies in defining the determinants of a business model.
Changes in recent years such as the evolution of internet-based business models explain why the major part of research on business models stems from the area of e-commerce (DeYoung, 2005; Hayes & Finnegan, 2005; Kraemer et al., 2000; Mahadavan, 2000; Osterwalder & Pigneur, 2005). Under this circumstance, Mahadavan (2000) in his definition of the term business model rescinds from solely focusing on the internal aspects of a firm such as core competencies and capabilities but instead highlights the firm’s external relations in terms of revenue, value, and logistics. In contrast to the e-commerce view, Davenport et al. (2006, p.20) view the business model concept from an innovation perspective concluding upon the definition that a business model is a company’s “entire system for creating and providing consistent value to customers and earning a profit from that activity, as well as benefit for its broader stakeholders.” In fact, a variety of other business model definitions entail the primacy of the value innovation process for the alignment of company structure and governance (Amit & Zott, 2001; Chesbrough & Rosenbloom, 2002).
As dispersed as the discourse on the definition of the term business model is, as manifold is the determination of a business models’ characteristic components. Even though no common ground has yet been found, several propositions show some degree of convergence in regard to the key elements of a business model, which will be summarized briefly.
Applegate et al. (2007) differentiate a business models’ key characteristics into three dimensions: description of the components, description of resources and capabilities, and description of the value proposition.
Weill and Vitale (2001) also describe a business models’ common characteristics as three components which they call relationships, participants, and flows. More precisely these terms are referring to the relationships of a firm to its customers, suppliers, partners, and stakeholders, as determined by the flows of tangible and intangible goods between them.
Hedman and Kalling (2003) suggest five interrelated components including the market, activities, the offering, firm resources and organization. In contrast to most other theorists, Hedman and Kalling’s account of business model components integrates concepts of strategy literature: market analysis relates to the theory on Industrial Organization and Porters Five Forces, while firm resources relates to the theory of the Resource Based View.
The model of Shafer et al. (2005) also includes several components that can be classified into four categories. The first category is called ‘strategic choices’ and comprises all corporate decisions that have been made. The elements ‘creating value’ and ‘capturing value’ are understood to be crucial success factors in differentiating the company from competition. They need to be embedded in a ‘value network’ in order to account for the upper importance of relationships for the viability of a business model. A detailed overview over the single component clusters can be found in Figure 5 below.
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Figure 5: Business Model Components adapted from Shafer et al. (2005)
A similar approach towards the classification of business model elements is presented by Osterwalder et al. (2005). Their model comprises nine so called building blocks grouped by four pillars: product, customer interface, infrastructure management, and financial aspects. A description of the individual building blocks within these four pillars can be found in Figure 6 below.
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Figure 6: Nine Business Model Building Blocks adapted from Osterwalder et al. (2005)
The variety of different components presented in business model literature is vast; hence the above mentioned components are to be seen as merely a sample. For the further course of analysis, we will mainly refer to the business model approach of Osterwalder et al. (2005) since it presents a comprehensive organizing framework ideal for practical appliance.
3.2.2. Blending the business model concept with strategy
Research on business model literature revealed that there is a close link between the business model concept and business strategy. Numerous authors defining the term and the componential architecture of business models also address the role of strategy in the business model concept (Chesbrough & Rosenbloom, 2002; Hedman & Kalling, 2003; Magretta, 2002; Morris et al., 2005; Osterwalder et al., 2005). The following paragraph presents a short overview of business strategy definitions to gain a more holistic understanding of the term before the interactions of the two fields are debated.
As with the term business models, the term business strategy likewise lacks a clear taxonomy. Rather than a universally accepted definition, a variety of different streams can be observed. Rooting back to the Greek verb ‘stratego’ which means to “plan the destruction of ones enemies through effective use of resources” (Bracker, 1980, p. 219), the strategy term has been widely applied in business context in terms of describing why some firms are able to outperform others on a sustained level (Bracker, 1980; Kong, 2008; Weihrich 1982; Hofer & Schendel, 1978).
A summary of the commonalities between main theorists showed that the definitions around the term business strategy developed into two main streams of research. One view point on business strategy focuses on a situational or environmental examination of a firm’s position in the market place, whereas the second relates to a company’s resources and its proper exploitation (Bracker, 1980). The first stream mainly considering a firm’s opportunities and threats has later on coined the term industrial organization (IO), a theory according to which a company’s underlying causes for success are primarily attributed to its environmental factors. The second research stream which advanced from the SWOT approach, concentrates on organizational resources and capabilities as key determinants of success. This stream has later been labeled as the resource-based view (RBV) (Kong, 2008).
Within the context of the business model concept, the overlap with strategy has been a widely debated issue yielding extensively opposing opinions. Some authors within the field do not even consider the relation between the terms ‘business model’ and ‘strategy’ and use them interchangeably instead. Indeed, Margretta (2002, p.92) observed that “Today, “business model” and strategy are among the most sloppily used terms in business; they are often stretched to mean everything – and end up meaning nothing”.
However, the theorists who do take account of the relations and interdependencies between the business model and strategy can be classified in two categories: those, who propose a clear separation of the two concepts, and those who agree with Hedman & Kalling’s (2003) perception that the business model is not detached from strategy but in contrast, unites the very details of strategy.
In their review of existing literature on the relation between the business model concept and strategy, Seddon et al. (2004) identify five different views relating to the overlap between the two terms (Figure 7).
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Figure 7: Possible overlap between the concepts 'strategy' and 'business model' (Seddon et al., 2004)
In their attempt to clarify which of these views can be regarded as the more correct, they come to the conclusion that “A business model outlines the essential details of a firm’s value proposition for its various stakeholders and the activity system the firm uses to create and deliver value to its customers. If Porter (1996, 2001) is used to define strategy, business model may be defined as an abstract representation of some aspect of a firm’s strategy. However, unlike strategy, business models do not consider a firm’s competitive positioning.” (Seddon et al., 2004, p. 14).
This view is consistent with other literature in the field, such as Magretta (2002) who also argues that the dimension of competition is the decisive element which separates strategy from the business model concept. Hence, multiple companies can use identical business models, however, they will need to attach dissimilar strategies to their business models in terms of customers, markets, products, services, or value delivery to set themselves apart from competition. Thus, there is a clear linkage of both concepts yet they are different from each other.
Analogically, Shafer et al. (2005) suggest that the business model is a representation of a firm’s strategy as it reflects the strategic choices made and the implications of these in practice. Hence, they argue, that the business model can be used as an analytical tool to validate the choices made in the context of strategy.
Zott & Amit (2008) view the business model as a source of value which is distinct from the firm’s overall product market strategy. Rather than substitutes, the authors understand the two concepts as complements where substantial effects on firm performance can be obtained when the business model is cooperated with business strategy.
Following the thoughts of Magretta (2002), Shafer et al. (2005) and Zott & Amit (2008) this master thesis explores the business model concept as an integrator of different strategic perspectives. Drawing on theories of industry evolution and firm performance, strategic options for the future alignment of German OEMs are developed and broken down into the individual elements of a business model as suggested by Osterwalder et al. (2005).
3.3 Firm performance and collaboration
Inter-firm collaboration has been becoming more intense since the early eighties (Lavie, 2006). According to Gulati (1998), an inter-firm collaboration implies a voluntary agreement between firms based on resource- and knowledge-sharing for co-development of products, services or technologies. It may take different forms, including joint ventures, R&D partnerships, technology consortia, equal sharing alliance, franchising, reciprocal trade agreements, and affiliation with academic institutions. Alliances with regard to their formal structure can be differentiated between equity and non-equity alliances. Equity alliances are characterized by shared ownership and the exchange of equity, whereas non-equity alliances are characterized by contractual agreements (Gulati, 1995). Three conditions to fulfill the definition of the term strategic alliance are provided by Yoshine & Rangan (1995):
(1) The firms remain independent after forming the alliance.
(2) Benefits of the alliance and control over the performance of the assigned tasks are shared.
(3) The partner firms contribute continuously to key strategic areas such as technology and production.
According to the definition provided by Yoshine & Rangan (1995), mergers and acquisitions cannot be seen as a strategic alliance since the criterion of remaining independent is not given. Licensing and Franchising are also excluded by this definition. Both are characterized by knowledge transfer rather than technology transfer.
Over the last decade, a great deal of management research was carried out to the benefits such alliances can bring to member firms (Lavie, 2006; Dyer and Singh, 1998; Nooteboom, 1999; Buchmann and Pyka, 2012; Eisenhardt and Schoonhoven, 1996; Das and Teng, 2000). These studies are focused on the motivation for partnership (Eisenhardt and Schoonhoven, 1996; Hagedoorn, 1993), reasoning for alliance type or structure (Das and Teng, 2000), reconciling organizational structures and building trust in collaborations (Buchmann and Pyka, 2012), and the determinants for facilitating knowledge-sharing and joint learning in alliances (Dyer and Singh, 1998).
Addressing the positive relation between alliances and firm performance, the question of why two or more firms are willing to enter into an alliance was comprehensively investigated by Williamson (1975). According to his transaction cost theory, the motivation for partnership arises from the mutual opportunity of cost reduction. While generally every firm has the choice to obtain needed resources from the market or produce them internally, Williamson (1975) argues that due to market imperfections, firms may prefer not to obtain resources from the market. Market exchange may be inefficient due to high transaction costs involved such as search and information costs, bargaining costs, and policing and enforcement costs. This view builds on the theory of Coase (1937) who argues that the cost of obtaining resources from the market exceeds the sole product price, suggesting ‘the main reason why it is profitable to establish a firm would seem to be that there is a cost of using the price mechanism’ (Coase, 1937, p.390). Alternatively to obtaining resources from the market, firms may hence be motivated to produce resources internally. However, also internal obtainment of resources may be associated with complications due to administrative costs as arising from hierarchical governance (Williamson, 1975; Coase 1937).
Williamson (1975) suggests three main critical dimensions influencing transaction costs and thus impacting a firm’s sourcing decision:
(1) Uncertainty. Unanticipated deviations in environments surrounding a complex transaction drive transaction costs up since contractual costs rise due to a higher demand for safeguarding.
(2) Frequency. The greater the frequency of transactions, the more likely the benefits of hierarchical governance will surpass the costs of market exchange.
(3) Asset specificity. High asset specificity will upsurge transactions costs since opportunistic behavior is more likely to arise.
Economizing on the transaction costs, the organizational design and governance structure of a firm is determined. As a midway house between market exchange and hierarchy in attaining resources, strategic alliances are regarded an organization form able to minimize transaction costs under certain circumstances (Gulati, 1995; Chen & Chen, 2003). An analysis of the three key determinants of transaction costs may suggests internal acquisition of resources while the firm may naturally be limited in their ability to generate specific resources on an economic basis. Hence, accessing complementary resources and know-how of a partnering firm is regarded an efficient alternative for make or buy decisions.
Where the transaction cost theory approach treats costs as the main unit of analysis, the resource based view (RBV) addresses a firm’s ability of managing valuable resources to create competitive advantage (Wernerfelt, 1984; Penrose 1959; Rumelt, 1984).
By viewing the firm as a bundle of resources, it is argued that the heterogeneity of resources differentiates firms in their profitability (Andrews, 1987; Porter, 1985). In contrast to market-based theories viewing competitive advantage stemming from external factors (Porter, 1980; Lado et al, 1992; Bain, 1968), the resource-based view concentrates on disposable resources within a firm. According to Wernerfelt (1984) and Kostopoulos et al (2002), a firm’s sustained competitive advantage depends on the nature of resources it disposes of as well as its ability to internally organize and manage them.
In order to achieve a long-term competitive advantage, resources are required to be heterogeneous and immobile in nature (Barney, 1991; Peteraf, 1993). Effectively, this translates into rare and valuable resources that are neither perfectly imitable nor easily substitutable (Barney, 1991). If these conditions apply, the firm’s resource alignment is claimed to yield superior returns on a sustainable basis. Figure 8 visualizes the framework for the evaluation of resource conditions (VRIN) as developed by Barney (1991).
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Figure 8: The VRIN framework adapted from Barney (1991)
More recently, the RBV was extended by the theory of dynamic capability (Teece et al., 1997; Eisenhardt & Martin 2000; Zahra & George, 2002; Helfat, 1997). A dynamic capability is referred to as a firm’s competency to generate, integrate, coordinate, and adapt internal and external abilities to cope with fast changing environmental conditions. By developing such dynamic capability, a firm is able to stay ahead of competition and continue to earn above average profits (Teece et al., 1997).
Das and Teng (2000) classify the motives of collaboration through the lens of transaction-cost theory and resource-based view. Regarding the premise transaction-cost theory is built upon that managerial decision making is aimed at minimizing transaction costs, inter-firm cooperation is preferred when transaction costs associated with maintaining these relationships are not high enough to justify vertical integration. In terms of resource-based concept, the motives for inter-organizational collaboration stem from the need to achieve competitive advantage by combining valuable resources with other companies when these resources cannot be effectively exploited through mergers or acquisitions. Gulati (1998) also speculates on the transaction-cost reasoning and amends it with incentives to strengthen the market position and acquire new knowledge.
Since this thesis focuses on inter-firm collaboration as means to access new technologies and know-how in order to address the changing automotive landscape, resources rather than costs are at the forefront of analysis. Therefore, a resource-based rather than a transaction cost based approach is expected to contribute meaningful insights to this study. However, following the logic of Das and Teng (2000), we amend resource-based views with transaction-cost arguments whenever plausible to ensure a comprehensive scope of analysis.
Despite the plethora of research in the field of resource analysis, the issue of competitive advantage in the inter-organizational relationships is still poorly addressed. Viewpoint at competitive advantage through the lens of the resource-based view (RBV) is restricted to evaluation of inter-firm resources and, hence, cannot explain the synergy effect of collaborative initiatives.
In chapter 6, we will extend the RBV framework by introducing the inter-firm partnering as a source of additional competitive advantage illustrated by examples from the German automotive industry.
4 Outline of the German Automotive Industry
In order to give an overview of the present setting of the German automotive industry, this chapter outlines past and recent market developments including a brief discussion of specific locational factors. Moreover, the market fragmentation of major German OEMs is investigated. Finally, the current automotive mega trends severely impacting the industry’s overall structure are identified and briefly debated.
4.1 Market overview and recent developments
The automotive industry is the largest industry sector in Germany employing about 756,000 people and listing a turnover of EUR 361 billion in 2013. Automotive industry profits represent about 20% of total industry revenues in Germany (Germany Trade and Invest, 2012, p.3)
In the light of international competition, the German automotive industry has performed well in recent years. In the world’s major car markets, German companies were able to increase or at least keep their shares of the respective car sales. Given the deep recession the German automotive industry had to struggle with in the 1990s due to high structural costs after the country’s reunification, recent industry achievements are noteworthy. Vehicles of German brands by now pertain to the world leaders in terms of safety, performance, comfort, variety, design, reliability and image. (Deutsche Bank, 2014, p. 2)
With 5.45 million vehicles produced in 2013, Germany after Japan, China and the U.S. is the fourth largest car producer in the world (Statista, 2014).
Decisive for the positive development of the German automotive industry was a focus on core competencies which has contributed to lowering fixed costs. Also wage moderation in recent years increased the relative competitiveness of the sector to foreign competition. In parallel, more and more flexible working time models have been applied enabling industry members to overcome economic fluctuations without major interference with the regular staff. Close technological and spatial integration of manufacturers, suppliers, logistics companies, equipment suppliers, universities and other research institutions present another source of competitive advantage. This automotive cluster allowing for continuous productivity improvements and innovations in Germany is probably unique to this world (Deutsche Bank, 2014, p. 2).
Of particular importance for the continuous success of the German automotive industry is their massive internationalization strategy. While foreign car producers mainly serve their domestic markets, around 77% of the German car production goes abroad turning Germany into the world's largest passenger car exporter (VDA, 2014b). Not only have domestic car manufacturers and suppliers increasingly opened up to new markets within the past years. They also diversified their sourcing by purchasing many parts and components from abroad. Moreover, the German automotive industry has been expanding their production and R&D capacities abroad (Deutsche Bank, 2014, p. 2). As a result, the German car production in terms of volume has risen sharply abroad, however, domestic sales rather stagnated (though on a high level) on the long-term trend (Figure 9).
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Figure 9: Annual balance of new passenger car registrations (numbers in 1.000) (VDA, 2014c)
Current market Figures on domestic and foreign car production clearly demonstrate this development.
In 2013, the German car production reached over 8.6 million units abroad (VDA, 2014b). This value was 133% higher than in 2000 and even nearly four times as much as in 1995. For the period 2000 to 2013, this corresponds to an average annual growth rate of 6.7%. In contrast, the domestic car production in 2013 surpassed the results of 2000 by only 6.1% representing an average annual growth rate of only 0.5%. Compared to 1995, growth amounted to slightly less than one quarter (Deutsche Bank, 2014, pp. 2-4).
Since 1998, with the exception of the 2009 recession, passenger car production in Germany always totaled more than 5 million units. It is striking that the opening of the gap between domestic and foreign production accelerated especially in the years 2010 to 2012. In 2010 for the first time in history, more cars of German brands were produced abroad than domestically. By 2013 already, foreign manufacturing was almost 59% higher than domestic car production. Hence, after the crisis in 2009, the German automotive industry drastically increased production capacities in foreign locations. This is especially true for China, but also in the NAFTA region new production facilities were opened up and existing ones were extended. Also the stock of foreign direct investment of the German automotive industry increased in the long term. With EUR 130 billion in 2011, the German automotive direct investments accounted for 43% of total foreign direct investments (Deutsche Bank, 2014, p. 4). Even the recent relief of German motorists by declining mobility costs did not lead to an increasing demand for new cars. Consumers in Germany seem to hold back with car purchase (VDA, 2014c) (Figure 10).
Possible sources of such developments within the German automotive industry as well as prospective solutional approaches towards the accessing of new growth markets will be further discussed and elaborated in the context of this thesis.
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