Chapter 12 Outline

Global Strategy at General Motors

General Motors is one of the oldest multinational corporations in the world. Founded in 1908, GM established its first international operations in the 1920s. General Motors is now the world's largest industrial corporation and full-line automobile manufacturer with annual revenues of over $100 billion. The company sells 8 million vehicles per year, 3.2 million of which are produced and marketed outside of its North American base. In 1997, GM had a 31 percent share of the North American market and an 8.9 percent share of the market in the rest of the world.

Historically, the bulk of GM's foreign operations have been concentrated in Western Europe. Local brand names, such as Opel, Vauxhall, Saab, and Holden, helped the company to sell 1.7 million vehicles in 1997 and gain an 11.3 percent market share, second only to that of Ford in Western Europe. Although GM has long had a presence in Latin America and Asia, until recently sales there accounted for only a small fraction of the company's total international business. However, GM's plans call for this to change rapidly over the next few years. Sensing that Asia, Latin America, and Eastern Europe may be the automobile industry's growth markets early in the 21st century, GM has embarked on ambitious plans to invest $2.2 billion in four new manufacturing facilities in Argentina, Poland, China, and Thailand. This expansion goes hand in hand with a sea change in GM's philosophy toward the management of its international operations.

Traditionally, GM saw the developing world as a dumping ground for obsolete technology and outdated models. Just a few years ago, for example, GM's Brazilian factories were churning out US-designed Chevy Chevettes that hadn't been produced in North America for years. GM's Detroit-based executives saw this as a way of squeezing the maximum cash flow from the company's investments in aging technology. GM managers in the developing world, however, took it as an indication that the center did not view developing world operations as being of great significance. This feeling was exacerbated by the fact that most operations in the developing world were instructed to carry out manufacturing and marketing plans formulated in the company's Detroit headquarters, rather than being trusted to develop their own.

In contrast, GM's European operations were traditionally managed on an arm's-length basis, with the company's national operations often being allowed to design their own cars and manufacturing facilities and formulate their own marketing strategies. This regional and national autonomy allowed GM's European operations to produce vehicles that were tailored to the needs of local customers. However, it also led to the costly duplication of effort in design and manufacturing operations and to a failure to share valuable technology, skills, and practices across different national subsidiaries. Thus, while General Motors exerted tight control over its operations in the developing world, its control over operations in Europe was perhaps too lax. The result was a company whose international operations lacked overall strategic coherence.

Now GM is trying to change this. GM is switching from its Detroit-centric view of the world to a philosophy that centers of excellence may reside anywhere in the company's global operations. The company is trying to tap these centers of excellence to provide its global operations with the latest technology. The four new manufacturing plants being constructed in the developing world are an embodiment of this new approach. Each is identical, each incorporates state-of-the-art technology, and each has been designed not by Americans, but by a team of Brazilian and German engineers. By building identical plants, GM should be able to mimic Toyota, whose plants are so alike that a change in a car in Japan can be quickly replicated around the world. The GM plants are modeled after its Eisenach facility in Germany, which is managed by the company's Opel subsidiary. It was at the Eisenach plant that GM figured out how to implement the lean production system pioneered by Toyota. The plant is now the most efficient auto-manufacturing operation in Europe and the best within GM, with a productivity rate at least twice that of most North American assembly operations. When completed, each of these new plants will produce state-of-the-art vehicles for local consumption.

To realize scale economies, GM is also trying to design and build vehicles that share a common global platform. Engineering teams in Germany, Detroit, South America, and Australia are designing these common vehicle platforms. Local plants will be allowed to customize certain features of these vehicles to match the tastes and preferences of local customers. At the same time, adhering to a common global platform will enable the company to spread its costs of designing a car over greater volume and to realize scale economies in the manufacture of shared components--which should help GM to lower its overall cost structure. The first fruits of this effort include the 1998 Cadillac Seville, which was designed to be sold in more than 40 countries. GM's family of front-wheel-drive minivans was also designed around a common platform that will allow the vehicles to be produced in multiple locations around the globe, as was the 1998 Opel Astra, which is GM's best-selling car in Europe.

Despite making bold moves in the direction of greater global integration, numerous problems can still be seen on GM's horizon. Compared to Ford, Toyota, or the new Mercedes/Chrysler combination, GM still suffers from high costs, low perceived quality, and a profusion of brands. Moreover, while its aggressive move into emerging markets may be based on the reasonable assumption that demand will be strong in these areas, other automobile companies are also expanding their production facilities in the same markets, raising the specter of global excess capacity and price wars. Finally, and perhaps most significantly, there are those within GM who argue that the push toward "global cars" is misconceived. In particular, the German-based engineering staff at Opel's Russelsheim design facility, which takes the lead on design of many key global models, has voiced concerns that distinctively European engineering features they deem essential to local success may be left by the wayside in a drive to devise what they see as blander "global" cars.

http://www.gm.com

Source: R. Blumenstein, "GM Is Building Plants in Developing Nations to Woo New Markets," The Wall Street Journal, August 4, 1997, p. A1; Haig Simonian, "GM Hopes to Turn Corner with New Astra," Financial Times, November 29, 1997, p. 15; and D. Howes, "GM, Ford Play for Keeps Abroad," Detroit News, March 8, 1998, p. D1.