Cultural Impact on Internationalization

Cultural Impact on Internationalization

Difference Between the industries of Germany and Japan

European vehicle manufacturers have been more seriously affected by internationalization than those in Japan and America. The Japanese vehicle industry is too integrated and too highly competitive to afford much scope to competition from overseas. The U.S. industry is potentially more vulnerable on both counts but has so far been protected by logistical considerations and by the time and resources necessary to establish U.S. operations.

Yet the experience of British vehicle component manufacturers, whose exposure to international competition increased significantly after 1979, is a salutary reminder of just how quickly any gap in international competitiveness can impinge on performance, logistical factors not withstanding.

The severe but sustained decline after 1979 in the average profitability of 66 of the largest U.K. vehicle component companies shown in Fig. 1 can't be satisfactory explained merely by downturn in economic conditions. Nor can a declining domestic market be entirely to blame: between 1973 and 1979 U.K. car production virtually halved with little effect on suppliers' profitability, but since then it has remained fairly stable at around one million cars per year. The fact is many companies were caught unprepared by internationalization and they have paid dearly.

Cultural Differences among Japanese and German Businesses

A popular response in the U.K., though not in Japan, to increasing competition has been to pursue industrial consolidation through mergers and acquisitions, following up with rationalization programs aimed at maximizing the benefits of volume, Yet generally I found little evidence suggesting any performance advantage from sheer size.

U.K. component companies were arranged into six size groups based on sales in 1975. Figure 2 shows average profitability, in terms of return on capital employed (ROCE), over the subsequent decade. It suggests that many larger companies, which were formed from earlier consolidations, have in some respect already passed the point pi optimum size. Certainly market leadership, exercised by most of these companies (in their component sectors) merely in the domestic market, has proven no guarantee of competitive success.

Changing Customer-Supplier Relationships and the Impact on Market Power

One reason why domestic market leadership is no longer such an advantage is that internationalization has fundamentally altered the relative negotiating positions of customers and domestic suppliers, eroding any scope for monopoly power.

In the 1970s U.K. suppliers made healthy profits even at a time when domestic customers such as Austin Rover, more directly under pressure from international competition, were close to bankruptcy. Such a relationship could not of course last. The traditional cooperative relationship began to break down towards the end of the 1970s. This has been evident from major changes in sourcing policies, culminating in single sourcing in a number of cases. After 1979, assisted by international procurement operations and overcapacity in the supplier industry, Austin Rover completed the reversal in negotiating positions: even as it's own financial position in fact slightly alleviated, most suppliers were plunged for the first time into severe losses.

To survive Austin Rover ultimately had to insist on a radically more internationally competitive supplier service, ...