Distance Learning Project

Distance Learning Project
Cooperative activities and innovative
forms of value net organisation in the automobile industry
Paper: Topic 3
What are the characteristics of automotive distribution in 2020?
Authors:
Stefanie Goede
Tim Schlüter
Rafal Borowicki
Özkan Hayta
Bas van den Dungen
Iwona Kloskowska
Jakub Nawrocki
(University of Flensburg)
(University of Flensburg)
(University of Flensburg)
(University of Flensburg)
(Radboud University Nijmegen)
(University of Lodz)
(University of Lodz)
Table of content
Table of content ....................................................................................................II
Table of figures .................................................................................................... IV
1.
Introduction ................................................................................................... 1
2.
Problem Statement ......................................................................................... 1
3.
The Car Distribution in Europe .......................................................................... 2
3.1
The Independent Model: ........................................................................... 3
3.2
Franchise Model: ...................................................................................... 4
3.3
Direct distribution .................................................................................... 5
4.
Environmental triggers and their impacts ....................................................... 6
4.1
4.1.1
Political and legal issues ..................................................................... 6
4.1.2
Economic issues ................................................................................ 7
4.1.3
Socio-cultural issues .......................................................................... 8
4.1.4
Technological issues........................................................................... 9
4.2
5.
PEST: Germany ....................................................................................... 6
PEST: Poland ........................................................................................... 9
4.2.1
Political and legal issues ....................................................................11
4.2.2
Economic issues ...............................................................................12
4.2.3
Socio-cultural issues .........................................................................12
4.2.4
Technological issues..........................................................................13
Comparing automobile distribution...................................................................13
5.1
Germany................................................................................................13
5.1.1
The threat of substitute products ........................................................13
5.1.2
The intensity of competitive rivalry .....................................................14
5.1.3
The bargaining power of customers ....................................................15
5.1.4
The bargaining power of supplier ........................................................16
5.1.5
The threat of entry of new competitors................................................16
5.1.6
Main distribution model in Germany ....................................................17
5.2
Poland ...................................................................................................17
5.2.1
The threat of substitute products ........................................................17
5.2.2
The intensity of competitive rivalry .....................................................18
5.2.3
The bargaining power of customers ....................................................18
5.2.4
The bargaining power of supplier ........................................................19
5.2.5
The threat of entry of new competitors................................................19
5.2.6
Main distribution model in Poland .......................................................19
II
6.
Future outlook ...............................................................................................21
6.1
Poland ...................................................................................................21
6.2
Germany................................................................................................22
6.2.1
Direct distribution .............................................................................22
6.2.2
Independent Model – Americanisation .................................................23
6.2.3
Importance of Internet ......................................................................23
7.
Conclusion ....................................................................................................26
8.
References ....................................................................................................28
9.
Appendix ......................................................................................................31
Case Study Inditex.........................................................................................31
Case Study Dell .............................................................................................32
Commission Regulation (EC) No 1400/2002 ......................................................33
III
Table of figures
Figure 1
A Spectrum of distribution models
3
Figure 2
GDP pro capita in purchasing power parity for the EU countries
7
Figure 3
Market Share of different car brands in Germany
9
Figure 4
Dynamic of GDP growth in Poland in years 2000 – 2006
10
Figure 5
Value of motor vehicles export from Poland in years 2004-2007
11
Figure 6
Use of Internet in car purchasing
14
Figure 7
Automotive industry structure in Germany
15
Figure 8
Customer Structure Germany
16
Figure 9
New and used cars and used car ratios
20
Figure 10
Sources of used cars bought in Poland in 2007
20
Figure 11
Automotive industry structure in Germany
23
Figure 12
Reasons for problems in car dealing from the dealer’s point of view
24
Figure 13
Use of Internet – new-car sales
25
Figure 14
Use of Internet – used-car sales
26
IV
1.
Introduction
The automotive industry is still one of the most important industries in Europe and will be
important in the future. One of the main fields of the automotive market is the car
distribution, which deals with the problem of how the cars reach the customer (Ahlert,
1991, p.10). It describes the relationship between the manufacturer and the retailer, i.e.
contractual regulations, ownership or level of vertical integration (Chieux et al., 2007,
p.1).
Different strategies and approaches exist to manage and coordinate the relationship
between the manufacturer and the retailer, ranging from a totally independent approach
where the retailer has no contractual relationship with the manufacturer or a hierarchical
approach where the manufacturer owns and controls the outlets. Selecting the right
distribution strategy is important for succeeding in the car market. The manufacturer has
to choose the best way to bring his car to the customer.
Today the automotive industry, like any industry, has to deal with new challenges
because
of
changing
markets.
Drivers
for
change
include
the
continuing
internationalisation, growing competition in the market, changing consumer demands
and the growing importance of the Internet. To manage these new challenges car
distribution channels will change. Both the manufacturer and the retailer groups have to
select the proper strategy to be close to the market and to fulfil the new consumer
demands, because in the end, the customer decides who will succeed.
This paper analyses what models dominate the car distribution market and how these
models will be affected by the before mentioned changes. For motives of convenience the
car distribution markets in Germany and Poland, one developed and one developing
country, have been selected as focus for this paper.
2.
Problem Statement
“What are the characteristics of automotive distribution in 2020?”
In order to answer this question this paper will analyse what models dominate the car
distribution market today, look for changes in trends and determine how these changes
will affect the distribution models success in the future. To this end three sub questions
have been formulated that together should answer the main research question:
1) What are the core characteristics of automobile distribution today and which different
distribution models can be identified?
1
2) What political, economic, socio-cultural and technical trends can in identified in the
investigated markets?
3) How do these trends influence the car distribution models’ success?
The paper is structured according to these questions. Chapter 3 describes the three main
models of car distribution in Europe and how the relationship between the manufacturer
and the retailer is managed. Chapter 4 gives a PEST analysis for Poland and Germany,
showing the differences between these two countries and the trends that can be
recognized there. The fifth chapter is a comparison of the Polish and the German
automotive market by applying Porter’s Five Forces. It shows the distribution models that
are currently dominating in the investigated markets. The sixth chapter will than
conclude with answering our main research question and explain which distribution model
will, based on their characteristics and the appropriate changes, be dominant in the
future. The last chapter builds a short conclusion of the paper.
3.
The Car Distribution in Europe
There are different approaches and models for car distribution in Europe. These models
describe the organization of car retailing and the relation between the vehicle
manufacturer (VM) and its dealers. One definition given for distribution models is “The
manner in which goods move from the manufacturer to the outlet where the consumer
purchases them; in some marketplaces, it's a very complex channel, including
distributors, wholesaler, jobbers and brokers” (www.entrepreneur.com)
This paper will concentrate on the three main models in car distribution, being “The
Independent Model”, “The Franchise Model” and “The Direct Distribution Model”. Other
models exist, but are adaptations or mixtures of these main models. Including all of
these models would exceed the scope of this paper.
2
Figure 1 A Spectrum of distribution models (S. Royer et al., 2008, p. 2)
3.1
The Independent Model:
One of the three main car distribution models is the “Independent Model”. This approach
is characterized by a very low level of integration. For the complete independent
approach you can even say that there is at all no integration. That means the retail
organization is fully independent of the manufacturer. The retail organization does not
have to fulfil any standards or regulations that are written down in any kind of contract,
providing the retailer with a freedom of choice regarding the source and sale of its
vehicles (T.Chieux et al., 2007, p.10). The “Independent Model” therefore has a
wholesale orientation and is mostly used for providing used cars. This model can be
compared to a “supermarket” that sells a range of nearly new cars (T.Chieux et al.,
2007, p.10). Therefore in the new-car market the “Independent Model” includes a higher
level of integration of the manufacturer. In this context you can talk about an “efficient
delegation”. This way of car distribution shows a bit more of vertical integration. That
means that the retailer is still very independent of the manufacturer but there are at
least some restrictions or standards given by the manufacturer like following the right
use of its brand or salesmen’s training when there are new car models. But at all the
relationship still focus on the division of labour that the manufacturer produces and the
retail organization distributes (T.Chieux et al., 2007, p.5). On the one hand that lowers
the costs for the manufacturer because the retailer is in charge of selling the cars and
communicates with its customers. On the other hand it gives more independence to the
retailer because he isn’t bound to a lot of standards and requirements of the
manufacturer. The contract between both parties mainly consists of results. That could
mean that both parties negotiate in advance which amount of cars the retailer will order
3
and that he would guarantee a minimum of sold cars to the manufacturer (T.Chieux et
al., 2007, p. 6). In other words: it is coordinated by the market. This approach is more
useful and used in the new car-car market.
3.2
Franchise Model:
The Franchise Model is a form of vertical cooperation (D.Ahlert, 1991, p. 216). “The
franchiser gives a right to the franchisee against payment, e.g. a right to use a total
business concept/system, including use of trade marks [brands], against some agreed
royalty.” (S.Hollensen, 2007, p. 335) The franchise system offered by the franchiser
combines advantages of economies of scale, achieved through a large number of outlets
following the same concept and the local knowledge of the franchisee (S.Hollensen,
2007, p.337). This is especially of advantage when it is a company’s aim to expand
across national borders. A strong cooperative relationship based on mutual loyalty and
trust between the vehicle manufacturer and the franchisee is essential for the success of
this model. The franchiser provides the business concept containing, among other things,
trade marks, support services, design of the outlet, business know-how and marketing
resources, whereas the franchisee brings in capital and “the motivation to operate a
successful independent business” (S.Hollensen, 2007, p.338). Ownership in this sense,
i.e. the franchisee’s status of being economically independent, serves as an incentive for
the entrepreneur and as a guarantee for the business’ effectiveness and efficiency but at
the same time requires a certain ability to invest from the potential franchisee (T.Chieux
et al., 2007, p.7). The vehicle manufacturer provides a certain business framework to its
franchisee in order to assure the high quality standards required, leaving room for minor
adjustments that enable the franchisee to respond to the local customer needs in a
flexible manner and inform the franchiser about changes in e.g. customer demands
(T.Chieux et al., 2007, p.7). A disadvantage for the franchiser is the lack of direct control
over the operation. The VM is dependent on the franchisee as interface between the
franchiser and the end-user. Problems concerning the cooperative relationship, quality
control and the protection of the company’s as well as the product’s image might result.
If his performance lacks efficiency or consistency with the corporate headquarters, this
will probably affect the franchise system as a whole. Here it becomes obvious that
recruiting
a
competent
franchisee can
be
time consuming
and
also expensive
(S.Hollensen, 2007, p. 349). Apart from the risks the franchiser has to bear there is also
a certain risk for the franchisee involved. The franchiser cannot be sure ex ante that the
provided concept is successful or that the product will be accepted. If the franchiser does
not provide the level of guidance needed due to wide-ranging obligations he has to meet,
4
the franchisee might ex post end up in a locked-in situation, being held-up by its
franchiser.
The Franchise Model can be categorized between the independent and integrated models.
The chosen level of integration, ranging from hard to soft, and the selection of franchise
standards determine the intensity of the relationship (S.Royer, U. Stratmann, 2007,
p.53).
With regards to automotive distribution the franchise system can either be the traditional
franchise, regional groups – specialized on one brand family or large multi-franchised
groups (S.Royer, U.Stratmann, 2008, p.7).
According to the “Mehrmarkenvertrieb und –service Study 2003” Multi-Branding
Strategies will increase in popularity. While in 2001 the majority of the dealer groups
sold mainly the brand of one manufacturer, today most of the groups (73%) have
franchise contracts with more than one manufacturer. This multi-brand strategy is
preferred by dealers that concentrate on volume brands, whereas premium brand dealers
“fear it would jeopardize existing relationships with their manufacturers” (P. Soliman et
al., 2003).
For further information see Case Study “Inditex” in the appendix.
3.3
Direct distribution
This model describes the hierarchical strategy where the VM completely owns and
controls its outlets. The VM can either build up an outlet or acquire a partner by means of
vertical integration (S.Hollensen, 2007, p.364). The VM remains in full control of the
ongoing operations, thus he can make sure that the image of the brand as well as that of
the company itself stays consistent with the whole business concept (S.Royer,
U.Stratmann, 2008, p.1). Compared to franchising, this strategy requires immense
financial resources and is less flexible (S.Hollensen, 2007, p.364). By means of
standardized processes and systems economies of scale can be generated (T.Chieux et
al., 2007, p.8). In Germany this strategy is mainly used by premium brand
manufacturers, although an increase in volume brand manufacturers setting up own
outlets can be observed (L.Bozon, 2005, p. 23). Between 1999 and 2004 the amount of
manufacturer owned outlets increased from 197 to 340 (L.Bozon, 2005, p. 23).
Another model that is applied in automotive distribution is the agency model. The main
objective of this model is to cope with the lack of dealers’ incentive concerning his effort.
A possible solution to this problem is a co-ownership where e.g. the manufacturer owns
60% of the company and the partner 40% (T.Chieux et al., 2007, p.11). A combination
of manufacturer owned outlets and franchise outlets are another possible solution to this
problem. For further information see Case Study “Dell” in the appendix
5
4.
Environmental triggers and their impacts
In the following paragraph political/legal, economic, socio-cultural and technological
triggers in the macro-environment of the investigated markets shall be identified in order
to be able to assess their impacts on future car distribution strategies in the next step.
4.1
PEST: Germany
In general, Germany is the leading car manufacturing country in the EU and concerns like
Daimler Chrysler, Volkswagen and BMW have their domicile here and accounted for 36
plants in 2004. The car industry employed about 945,100 people in 2004 (Institut der
deutschen Wirtschaft, 2005, ”Deutschland in Zahlen 2005”, p. 34) and in the same time
it accounted for a turnover of EUR 280 billions, 12.33% of GDP. The car manufacturing
industry is most important for export and in 2004 accounted for EUR 155 billions or
20.5% of exports (Institut der deutschen Wirtschaft, 2005, ”Deutschland in Zahlen
2005”, p. 40). The import of vehicles accounted for EUR 72,175 billion so Germany is
clearly net exporting country in this sector (Institut der deutschen Wirtschaft, 2005,
”Deutschland in Zahlen 2005”, p. 40).
4.1.1 Political and legal issues
Germany is one of the six founding states of the EC, the predecessor of the EU. The EC
was set up to avoid conflicts through the empowerment of trade and through even closer
integration of the countries. Germany is a well-developed country with many institutions
that guard the democracy. The country has a federal structure, consisting of 16 states
that experience some degree of autonomy, but law considering environmental issues and
competition is made on a federal level. In general the political system is very stable with
very low corruption and low legal entry barriers exist, in general as well as for the
automotive distribution market.
The EU legislation affects the German market as well. The block exemption for the car
industry is set out in a June 1995 regulation, “distribution of motor vehicles” (no:
1475/95), which expired at the end of September 2002 but the clause came into effect in
October 2005 (www.berr.gov.uk). The effect of this regulation is to prevent dealership
franchises from selling more then one make of car. It also stops dealers based in
different EU countries from trading with each other.
6
After the block exemption regulation, dealers can exhibit cars of different brands in the
same showroom but in separate sales areas. Furthermore, dealers now have to choose
between two distribution methods:
•
Selective, where they may sell actively to consumers in any location and in any
EU country, but not to independent resellers.
•
Exclusive, where they are still allocated exclusive distribution areas, though they
will also be free to sell to independent resellers and customers from outside the
area who contact them directly.
4.1.2 Economic issues
Economic factors are very important for car distribution, because they affect it directly.
Germany belongs to the highly developed and industrialized countries with a GDP on the
upper scale in international comparison – in fact with a nominal GDP of over 3.322 billion
USD Germany occupies the 3rd position among the richest countries in the world. The
GDP growth is stable. Since Germany is a developed country, no rapid growth rates can
be expected – for 2008 the prognosticated GDP growth amounts to 2.7%. The
aggregated GDP does not indicate much about the individual purchasing possibilities.
Taking into account Germany has 82 millions inhabitants in the country, the nominal GDP
per capita, according to the WORLD BANK, amounts to USD 40,000 or measured in
purchasing power parity 35,000 according to the IMF, which corresponds respectively to
EUR 28.000 and EUR 24.500 per capita. This positions Germany on rank 19 and 17
respectively, but still on the upper scale in international comparison. Figure 2 shows the
GDP per capita in purchasing power parity for the EU countries.
Figure 2 GDP per capita in purchasing power parity for the EU countries
(http://europa.eu)
7
There are about 45.350.000 cars in Germany (www.kfz-auskunft.de) and 95,9% of 4
person households in West and 96,9% in the East had a car in 2004. Disposable income
is defined as current money reserves, savings, borrowing opportunities, money transfers
from state, deprived of taxes, rents and current obligations (Blanchard, O., 2003, p. 48
f). German households in 2004 used on average 9.3% of their overall spending on the
purchase of cars, repairs and the costs of upholding including fuel (Institut der deutschen
Wirtschaft, 2005, ”Deutschland in Zahlen 2005”, p. 62). This means that the average
household spent about EUR 2.940 on cars in 2004. The current trend of increasing fuel
prices will probably affect the spending, since a larger portion will be allocated to fuel so
less money is available for spending on the purchase of new cars. This is one of the
reasons cars in Germany are older now than ever, averaging at 8.1 years old.
(http://213.77.105.135/winfoniemcy/5_baza/9_raporty_i_analizy/Wywiad_Meinig.asp?na
vid=342, 21.05.2008, 18:32). The ratio of used to new cars is about 2.0 meaning that
twice as much used car are changing owner as new car are being sold(Workshop
22.05.2008, Presentation by Dr. Głodek about Used Cars Soraya Document 080422
_DLP_Used Cars.pdf). The decrease in sales of new cars has many reasons. Not only the
increase of VAT, which the German government decided to increase with three
percentage points (or 18,75%) from 16 to 19% caused the decrease of demand for new
cars. Other causes include the increasing costs of upholding a car due to e.g. increasing
oil prices and increasing prices of spare parts and service. Furthermore, many potential
buyers consider whether buying an almost new car, e.g. one year old car (German:
“Jahreswagen”) or two year old car in good condition for a good price is better than
buying a new one. Discounts and extra frills like air condition offered by car dealers on
new
cars
will
not
solve
this
situation
on
its
own.
(http://213.77.105.135/winfoniemcy/5_baza/9_raporty_i_analizy/Wywiad_Meinig.asp?na
vid=342). Therefore stagnation in German automotive distribution of new cars can be
expected but on the other hand the amount of cases where the used car shifts its owner
will increase.
4.1.3 Socio-cultural issues
For many Germans, the car is very important. It symbolizes mobility, independence,
freedom and individualism. Therefore, for many Germans the car is one of the most
important status symbol as said in the sentence “The car is the Germans favourite child”.
Another significant issue is that in Germany most sold cars are German Brands. This
results in an extra entry barrier for international brands when trying to establish
themselves in the German Market. Figure 3 shows the market share for car brands in
Germany.
8
Position Brand
Market
share
Units
millions
1
2
4
5
21,30%
14,90%
9,20%
9,00%
9,66
6,76
2,81
4,08
Volkswagen
Opel
Ford
Mercedes
BMW,
6
MINI
7
Audi
8
Renault
9
Fiat
10
Toyota
11
Peugeot
10
Nissan
11
Mazda
3
other
Figure 3 Market Share
in
6,40%
2,9
6,20%
2,81
5,30%
2,4
2,80%
1,27
2,70%
1,23
2,60%
1,18
2,50%
1,13
2,40%
1,09
14,70%
6,67
of different car brands in Germany
(www.kfz-auskunft.de)
4.1.4 Technological issues
Especially the development of communication technologies has to been mentioned here.
Those technological developments have provided advantages to distributors in order to
provide information for consumers and their rival actors in the sector. There are Internet
platforms providing information about cars so the information is to be seen as invitatio ad
offerendum (Keenan, D., Riches, S., 2005, P. 244) an invitation to treat. One example
for this kind of Internet use is mobile.de where buyers can find information about used
cars and prices and contact information, but the site is not trading in cars directly like
motors.ebay.de. Technological changes combined with the impact of globalization on the
industry undermined car distribution sector for a link between sales and service of cars.
4.2
PEST: Poland
Poland has an old and rich motoring tradition (the first cars were produced by FIAT
already in the 30s) and today its domestic car market is the largest and one of the most
promising among the new EU Member States: the presence of almost all the major
carmakers, along with its leading role in the manufacturing of components make Poland
one of the most attractive countries in Europe for the global automotive sector. The
automotive industry, one of the first to be privatised in the early 1990s, plays a more
and more important role in the national economy: its share in the GDP creation was
around 4% in 2006, whereas its share in the total production of the Polish industry was
10.2%. The snowball effect following investments in the automotive sector brings along
9
benefits for companies in several sectors and creation of new jobs in the whole national
economy.
Poland as one of the former communistic countries has a market condition different from
west European countries. Poland is one of the biggest potential markets in Europe where
the demand for luxurious goods, especially for new cars, could be very large in the
nearest future. Currently approximately 38 125 000 people live in Poland (Polish Main
Statistical Office 2006). Their average salary amounts to 2786.29 zł and has been
continuously growing for the last few years. The Polish economy, where GDP (figure 4)
in the last few years has been dynamically increasing, is doing very well. Along with the
growing economy, employment and general consumption are increasing.
30,0
25,1
25,0
20,0
19,3
15,8
15,0
10,5
10,0
6,7
5,0
4,2
4,2
5,3
1,1
1,4
2001
2002
5,8
5,3
3,8
3,5
0,0
2000
increase year to year
2003
2004
2005
2006
GDP Growth(1999 = 0%)
Figure 4 Dynamic of GDP growth in Poland in years 2000 – 2006
(Departament Rachunków Narodowych i Finansów GUS)
These positive macro economical factors have a direct leverage on the condition of
automotive market. According to SAMAR in the first quarter of 2007, 198.6 thousand
passenger cars and delivery vans were manufactured in the 5 main car factories in
Poland, approximately 11% more than a year before. Export demand is one of the most
significant factors that drive the output numbers up; almost 96% of Polish car production
is assigned for export (Cezary Pytlos “Rynek aut: świetny rok, ale tylko dzięki
eksporterom”; Gazeta Prawna 14.XI 2006). In the overall Polish export, the car export
value is very high and has the largest contribution to the country’s total export. The
value of the Polish motor vehicle export in the years 2004-2007 is shown in chart 2.
10
65
61,6
60
56
55
50
45
42
40
40
35
30
2004
2005
2006*
2007*
Figure 5 Value of motor vehicles export from Poland in years 2004-2007
4.2.1 Political and legal issues
Poland is a democratic republic. Its current constitution dates from 1997. The former
constitution was based on a communist version from 1952. Thus indicating Poland’s
transition from a socialist people’s republic to a parliamentary republic with a social
market economy (www.wirtschaft-polen.de). Since Poland’s political transformation from
socialism to capitalism in 1989/1990, together with a liberalization of international trade
and Poland’s entry into the European Union in May 2004, it is one of Germany’s most
important trading partners located in East- and Central Europe. The bilateral trade
between these countries amounted to EUR 60,2 billion in the last year
(exports to
Poland: EUR 36.1 billion; exports from Poland: EUR 24.1 billion) (www.auswaertigesamt.de).
The EU legislation affects the German market as well as the Polish market. “The new EC
Cars Block Exemption should help reduce prices by increasing competition and providing
greater freedom to import cars from other member states” (www.berr.gov.uk). This
affects the car distribution in a significant manner, considering that personal import is the
main distribution channel of used car purchases in Poland (P. Glodek, 2008, p.3). Only
one out of ten cars sold in Poland is a new car (P. Glodek, 2008, p.3). Moreover, the
Block Exemption Regulation 1400/2002 shall loosen the restrictions imposed on dealers
enabling them to sell more than one brand at the same outlet (www.berr.gov.uk). The
cross-border trade between Germany and Poland will visibly increase with Poland’s entry
into the Schengen Group in 2007 enabling Polish citizens to travel freely within the
Schengen area without border checks (www.poland.gov.pl).
11
4.2.2 Economic issues
Poland is considered to have one of the healthiest economies of the post-communist
countries, with GDP growing by 6.5% in 2007 (www.auswaertiges-amt.de). Since the fall
of communism, Poland has steadfastly pursued a policy of liberalizing the economy and
today stands out as a successful example of the transition from a state-directed economy
to a primarily privately owned market economy.
Restructuring and privatisation of "sensitive sectors" such as coal, steel, railways, and
energy has continued since 1990. Between 2007 and 2010, the government plans to float
twenty public companies on the Polish stock market, including parts of the coal industry.
Although the Polish economy is currently undergoing economic development, there are
many challenges ahead. The most notable task on the horizon is the preparation of the
economy (through continuing deep structural reforms) to allow Poland to meet the strict
economic criteria for entry into the European Single Currency (Euro).
Average salaries in the enterprise sector in January 2008 were around 3000PLN (which
equals to 840 euro or 1300 US dollars) and growing sharply. Salaries vary between the
regions: median wage in the capital city Warsaw was 4600 PLN (1200 euro or 2000 US
dollars)
while in
Bialystok it
was only 2400
(670
euro or 1000
US
dollars)
(www.auswaertiges-amt.de).
Since joining the European Union, many workers have left to work in other EU countries
(particularly Ireland and the UK) because of the high unemployment in Poland, the
second highest in the EU (14.2% in May 2006). However, with the rapid growth of the
salaries, booming economy, strong value of Polish currency, and quickly decreasing
unemployment (8% in March 2008) the exodus of Polish workers seems to be over. In
2008, people returning to Poland outnumbered those that were leaving the country.
4.2.3 Socio-cultural issues
Poland is a country where you will not find mass immigrant movement compared to
western countries. However, more and more companies are trying to get employees from
abroad, especially from Ukraine, Belarus and from the Far East like China and North
Korea. This situation is caused by the lack of employees on the current Polish market
because of the unattractive salaries. According to EU forecasts there will be more
immigrants from Eastern Europe in the nearest future.
In the purchasing behaviour of Polish citizens, price is the critical criterion, including car
purchases. The Internet as a source of information enables potential buyers to compare
car prices online or as a means of marketplace supporting the P2P-sales of used cars
(Bednarek, 2008).
12
4.2.4 Technological issues
Technology in Poland is improving very fast. The development of Internet connections
has a huge impact on selling cars. An increasing number of households have access to
the Internet. The Internet has become one of the main information sources concerning
price and product information. Moreover, online communities and recessions give the
potential purchaser additional information. It can also be used as means of direct
marketing. VM therefore push their dealers to make use of it. Conservative thinking of
dealers’ sometimes limits the usage of Internet with all its advantages (G. Wójcik,
presentation Lodz).
5.
Comparing automobile distribution
Having analysed the macro-environment in Germany and Poland, Porter’s Five Forces
shall be applied to assess the prevailing competitive situation of automotive distribution
in the investigated countries.
According to Porter’s model “the state of competition and profit potential in an industry
depends on five basic competitive forces: new entrants, suppliers, buyers, substitutes
and market competitors” (S.Hollensen, 2007, p.102). In this chapter the competitive
situation of the existing distribution channels within the car industry shall be assessed.
The aim of this analysis is to find a right position or the right distribution strategy in the
automotive industry that enables a company to defend itself against the competitive
forces or to find position where the forces are weakest (M.E.,Porter, 2008, p.89).
5.1
Germany
5.1.1 The threat of substitute products
The main substitute product to the common car distribution models is the Internet.
Consumers are increasingly using the Internet when considering a purchase. Besides
price information the Internet also offers a great variety of technical information
concerning a car’s features and its equipment even beyond national borders (W.Diez,
2001, p.351). The customer is not bound to certain opening hours but able to find the
information he needs whenever he wants with marginal expenses and minimal time
exposure. According to figure 6 German car purchasers are most likely to use the
Internet when it comes to buying a new or used car (W.Diez, 2001, p.415).
13
In the future online sellers could be a substitute product and danger for the retailer and
their common way of car distribution. Already pages like www.autoscout.de or
www.mobile.de exist, where the consumer can look for cars as well for new ones as for
used ones. These pages are especially used in the used car market. The next step could
be an online retailer who has no store and is selling his car only and direct via the
Internet.
Consumers already have the possibility to choose or to assemble their
personalized car (Gromer, 2006, p. 72).
Do you use the internet to buy the next car?
new-car
used-car
% answering "absolutely" or "probably"
30
25
25
22
22
20
20
17
15
13
15
14
9
10
5
5
0
Germany
USA
UK
Holland
Frankreich
Figure 6 (Source: Cap Gemini, 2000, in W.Diez, 2001, p.415)
5.1.2 The intensity of competitive rivalry
The competition in the area of car distribution and in the car market at all is getting more
intense. The main reason for this development is the continuing stagnation of the car
market in Germany and a fierce price competition (IfA, 2007, p.3). Car manufacturers, as
well as car retailers, have to deal with this problem. Another main reason leading to an
increase of rivalry is the Internet as main information tool for potential car buyers. Prices
become more transparent reducing VM and dealers profit margins (W.Diez, 2001, p.415).
On the one hand the threat of the Internet seller and on the other hand the use of the
Internet to reach the costumer directly could lead to the conclusion that online
competition already exists.
Another reason enhancing the competitive rivalry in the car distribution market is the
ongoing consolidation process, meaning that VMs are forced to extend their product
14
range and expand at the same time. Hence an increasing number of mergers,
acquisitions and strategic alliances lead to the rise of few big sellers that define the car
industry in Germany letting the competitive situation become more intense (IfA, 2007,
p.3). At the same time a decrease in the number of single dealers can be observed, due
to the fact that it becomes more difficult for smaller dealers to exist and survive in the
market. According to the IfA Institute the number of car dealers in the German car
market decreased from 18.000 in the year 2000 to 9.800 in 2006 (IfA, 2007, p.3).
Automotive industry structure in Germany
companies
commercial units
45.000
40.000
35.000
25.800
30.000
23.500
25.000
20.000
15.000
18.000
10.000
9.800
5.000
0
2000
2006
Figure 7 Automotive industry structures in Germany (IfA, 2007)
5.1.3 The bargaining power of customers
The power of a single customer in the car market is relatively small. With the rising
importance of the Internet in car distribution the customer gains access to new
information sources and can compare prices or find important information about the
quality and reputation of brands. Because of that a single customer might be able to get
a better price for a car minimizing the profit margin for the dealer and VM respectively.
Profit margins generated from new-car sales become less important. Within the
customer-based approach it is the value added services that maximize the profit (G.
Wójcik, 2008). On the other hand a growing number of business customers can be
15
observed. Due to the fact the these customers purchase a high amount of cars, so called
fleets, their bargaining power might be higher depending on the amount of cars they are
purchasing. According to figure 8 54% of the new cars sold in the German market are
business cars of which 59,8% are fleets ranging between 1 to 100 and more cars per
fleet (S.Royer, U.Stratmann, 2008, p.4).
Figure 8 Customer Structure Germany – profitable private customers in decline (Source:
ICDP and national sources in S.Royer, U.Stratmann, 2008, p.4)
5.1.4 The bargaining power of supplier
The manufacturer has a large bargaining power; it can choose his distribution model and
its retailers. Therefore he has the stronger negotiation power. The contracts between the
manufacturer and the appointed dealer often include clear restrictions and regulations
like the use of the brand, the customer communication as well as the design of the
stores. Another issue to be considered is that the manufacturer has the chance to
distribute his cars on his own and use that as a threat to the appointed dealer.
5.1.5 The threat of entry of new competitors
The entry barriers of the German car distribution industry are reputation, established
customer relationship as well as the cooperation between the manufacturer and the
retailer. These factors could make the entry more difficult for new entrants into the
market. But there is still a threat of new entrants. Big dealer groups, especially foreign
dealer groups, are entering the German market (IfA, 2007, p.2). These dealer groups are
16
a threat for smaller dealer because of their available capital and human resources. In
2006 the automotive trade group Kroyman from Netherlands was number one in terms of
growth, increasing its new-car sales by 75% to 8.774 units. (IfA, 2007, p.2)
Furthermore it has to be stated that there are differences to be identified regarding the
threat of new entrants that are strongly depended on the local environment. In huge
cities, price competition among the existing competitors might be so fierce, that it
prevents new entrants from entering into the market whereas in rural areas the
conditions might be more favourable for a new entrant. This also applies to prices of
business premises that vary a lot across Germany depending on the exclusivity of the
location.
Another threat for new entrants could be seen with the emergence of the Internet as
direct distribution channel following Dell’s former concept of success. It is possible that
during the next years more manufacturer or retailer will make use of the Internet to
provide their cars (Diez, 2001, p. 344).
5.1.6 Main distribution model in Germany
In Germany the used car market is mainly regulated by “P2P” selling and by the
independent approach (supermarket). The new car market in Germany is dominated by
two approaches, the franchise model and the direct distribution model. The most
common approach is the franchise model where the VM regulates the car distribution by
appointed dealer (retailer). The main car manufacturers, like BMW, Ford or Opel, are
using this distribution model. (Gromer, 2006, p. 65) Many of the retailers are, however,
offering more then one brand in their stores. Today, almost 60 % of the car retailers
offer more then two brands in their stores (Institut für Verkehr und Umwelt (IVU),
Präsentation “Herausforderungen für Automobil-Handel”, 2006, Slide 8). The direct
distribution model exists in Germany, it is used e.g. by Daimler Chrysler, but it plays a
rather insignificant role. (Gromer, 2006, p. 61).
5.2
Poland
5.2.1 The threat of substitute products
Nowadays the main threat to dealers in the Polish car distribution market is the import of
cars, especially used cars and the closely connected P2P market for used cars in Poland.
The used car market has become an ever-growing threat for the new car market and the
distributor since Poland joined European Union in 2004. With this step most of the
restrictions concerning the import of used cars from foreign countries were lifted. As the
17
government did not introduce any new regulations, the European market of used cars
opened for Polish people in an instant, and was affordable for those who had not been
able to afford a new car before. Around 870,000 used cars were imported into Poland in
2005. Most of them were older than 10 years. According to the latest TNS OBOP’s
research 96% of those who bought a car in the last year chose a second-hand vehicle.
This is hardly surprising considering the fact that individual importers did not have to pay
a 22% VAT charged before. They paid only an excise tax depending on the car age (up to
65% of the imported car value). The government tried fruitlessly to limit the excessive
car imports.
The second substitution threat is the Internet. (Researches done by Capgemini “CAR
ONLINE”). Poland is going through the same process as Germany, the Internet becomes
increasingly more important and is affecting the Polish car market as well. Just as in
Germany the Internet is used as a source of information and a potential buying place for
cars.
5.2.2 The intensity of competitive rivalry
The Polish market is characterized by a high amount of small dealers, often family
businesses. However, most of them are starting to realize that having one small car
showroom can be unprofitable. Another problem in the Polish market is intra-brand
competition, describing rivalry between small dealers in one city selling the same brand.
This problem exists especially in big cities like Warsaw. Another notable issue is the
consolidation process, an increasing amount of big dealer groups with a high level of
control replacing the smaller dealers. This process will intensify the competition in the
market especially for small dealers. The last point is, as mentioned before, the increasing
importation of used cars to Poland. The car distributors have to compete with the P2P
market or independent used car dealers, but also more and more dealers will make use
of the opportunity which lies in the selling of used cars (PriceWaterCoopers & Samar,
2007, p. 15). Already 88% of all car dealers are selling used cars today. 84% of the
dealers buy used cars from their customers in exchange for a new car. 44% of the
dealers operate as intermediaries, selling a used car on the behalf of the customer. 29%
of the car dealers buy used cars at the polish car market and 14% are imported from
abroad (PriceWaterCoopers, 2007, p. 19)
5.2.3 The bargaining power of customers
The barging power of customers is rather high in the Polish market. Especially since the
customers have a choice where they want to buy and which car they want to buy. The
18
market is open and if somebody wants to buy car in a different country, he can go even
abroad to buy it or event import it by the Internet (not from car distributors but from
manufacturers). So the car distributors have to care for their customers and have to
develop motives for customers to buy a car at their dealership, rather than elsewhere.
5.2.4 The bargaining power of supplier
The bargaining power of suppliers, in this case the manufacturer, is rather high, since the
VMs are rather consolidated but the dealerships are numerous and scattered. The
manufacturer has the possibility to choose between lots of dealer that would like to
corporate with the manufacturer. This allows the VMs to develop strict contractual
regulations. Within the franchise system the manufacturer gives strict regulations to the
dealer that he must fulfil, including use of the brand, design of the outlet and training of
the employees.
5.2.5 The threat of entry of new competitors
Like in most markets the danger of new competitors exists, but in Poland, the entry
barriers for new dealers in the car distribution market are quite high. The main reason
being the high initial capital required to start a distributor. Another entry barrier is the
benefit importers get from their already existing networks. In Poland, as well as in
Germany, there are differences to be identified to terms of level of competition
depending on the local environment that might have an impact on the price structure. In
cities like Warsaw prices are lower than in Lodz so that the high level of rivalry impedes
new companies from entering.
5.2.6 Main distribution model in Poland
The Polish car distribution market is organized quite differently from west European car
markets. According to the results of the PEST analysis (compare chapter 4.2.2)
concerning economic issues in Poland the average person in Poland still lacks the
economic purchasing possibilities compared to his western neighbours. The car market in
Poland is not as big as in Germany. Of course the population is only half that of
Germany, but there are further factors to concentrate on: Mainly, the distinctive
characteristic of the market is that in Poland the amount of used cars being sold is much
higher in relation to new cars being sold. This is called new to old ratio and is illustrated
in figure 9.
19
Figure 9 New and used cars and used car ratios
(Glodek, P., 2008)
This figure shows that for every new car sold more than 9 used cars are being sold. This
is the absolute highest ratio compared to the other listed countries.
Therefore by analysing the car distribution in Poland it is important to take a look at the
used car market as well as the new car market.
Figure 10 Sources of used cars bought in Poland in 2007 (personal users)
(Glodek, P., 2008)
The Polish car distribution market for used cars is very widespread. The most important
sources are the personal import with 26 %, the P2P with 19 %, the Internet
advertisement with 15 % and the independent retailer with 14 %. For the personal
import is important to know that there are two kinds of imports; import for personal use
or import for reselling.
The car distribution within the new car market in Poland is very different to the used car
market. Here the market is more characterized by small dealers most often using the
franchise model. The direct and independent model play an insignificant role in the Polish
car distribution market.
20
6.
Future outlook
Having assessed the macro-environment of Poland and Germany as well as the
competitive structure of its respective automotive distribution industries, in the following
paragraph an attempt will be made to give an outlook on what car distribution will look
like in 2020.
6.1
Poland
Because of the continuing consolidation process the competition in the market will keep
increasing and it will become very difficult for small dealers to survive in the car
distribution market. Big dealer groups have better financial and human resources at their
disposal. Therefore it is easier for them to get into the market or to negotiate with
manufactures. Because of this many small dealers, but also dealer groups, will change to
the multi-brand franchise model. By providing more brands the chance to reach the
customer and to fulfil there demand will be bigger. Summarized it can be said that the
Polish new car market will be dominated by big dealer groups which use the multi-brand
franchise. The use of the Internet, as shown before in the paper, will also continue to
increase. Today, the searching process concerning the selection of a new car based on
Internet research has become the most used source of information for the Polish
consumers. The use of the web has grown by 400% from 2000 to 2007 and is now the
primary information source over information coming from friends, family or even car
dealers: over 60% of respondents used Internet in 2005 for information research,
compared to only 20% in 2002 (www.pl.capgemini.com). It is therefore essential that the
dealers, the small dealers as well as the big dealers, are well presented on the Internet
to provide information about their cars and offers to the customers. Selling new cars
directly over the Internet will only be a niche market in the near future, the physical
distribution is still too important for a purchase this large for many consumers to
consider going through the whole process online.
Another trend is that the used car market will decrease in importance over the next
years. A new car is increasingly seen as an important status symbol in Poland and, with
the increased GDP and wealth in Poland, becoming increasingly affordable, causing the
demand for new cars to rise at the expense of used cars. But, since this process requires
time, in the nearest future the used car market and especially the import of cars from the
western countries will still have an impact on the new car dealers.
21
6.2
Germany
Trying to give an outlook on what car distribution in Germany two models will compete
for the market. On the one hand there is the direct distribution model and on the other
hand there are Mega-Dealers following the American example. In 2020 the Internet will
also be of importance in automotive distribution. An approach to describe of how the
Internet can be applied in 2020 concerning car distribution will be explained below in
detail.
6.2.1 Direct distribution
Since the regulation 1400/2002 manufacturers are no longer able to combine selective
with exclusive distribution. As a result most manufacturers chose to concentrate on
selective distribution (F. Verboven, 2007, p.9). Through selective distribution the VM can
impose quantitative (set a limit to the total number of dealers in the country) as well as
qualitative criteria (minimal staff, advertising, stock levels, showrooms etc.) on the
dealer. The VM can require that the dealer sells at least 30% of its brands, but is no
longer able to tell the multi-brand dealer to operate multi-brands as separate legal
entities (F. Verboven, 2007, p.11). Furthermore, the dealer no longer has to provide
sales and after-sales service to its customers, allowing authorized repairers to focus on
repairing and no longer having to sell cars as well (F. Verboven, 2007, p.10).
After the reforms in 2002 most dealers stuck to the strategy of combining sales and
after-sales service (F. Verboven, 2007, p.13). This is in favour of the VM because it
contributes to brand reputation and customers’ loyalty (F. Verboven, 2007, p.18). VMs
want to achieve an optimal level of dealer service. Dealers do not take into account the
VM’s benefits and therefore lack an incentive to provide a high level of service (F.
Verboven, 2007, p.18). Selective distribution comes in as a solution to this incentive
problem enabling the VM to impose qualitative service criteria on to its dealers securing a
higher profit forcing the dealer to buy parts from him (F. Verboven, 2007, p.28). Thus
creating extra gains for the VM. 50% of the manufacturer’s profits are made in the aftersales market. As a result, the VM will try to keep as much control on their outlets as
possible. Another reason is the customer structure. Segments get smaller and smaller
and thus it becomes harder to respond to the emerging customer demands on an
individual basis. A higher level of control over his outlets enables the VM to learn about
customer’s demands and respond directly. The increasing product and quality similarity
in the car industry increases the importance of responsiveness to customer’s demands.
An example e.g. is the cooperation of two companies using the same platform for
different cars of different brands. With the cars becoming more similar, it is the image
the brand projects that makes the difference (W.Diez, 2001, p.413). In order to have an
22
optimal level of control over its dealers it is of manufacturer’s interest to establish direct
distribution outlets.
6.2.2 Independent Model – Americanisation
The second approach to automotive distribution in 2020 is the independent model
following the American model of huge Mega-Dealers (IfA, 2007,p.4). According to IfAInstitute a continuation of the consolidation process is to be expected, together with a
power shift in favour of big dealerships, as already can be seen in the USA where the
automotive distribution is dominated by few Mega-Dealers.
Automotive industry structure in Germany
companies
commercial units
45.000
40.000
35.000
25.800
30.000
23.500
25.000
21.000
20.000
15.000
10.000
18.000
9.800
5.000
8.000
0
2000
2006
2010
Figure 11 Automotive industry structure in Germany (IfA, 2007)
6.2.3 Importance of Internet
The Internet as a main threat to traditional distribution channels makes information
cheap, enabling customers to compare prices of cars and thereby reducing the profit
margin of dealer and hence of manufacturers.
23
Figure 12 Reasons for problems in car dealing from the dealer’s point of view
The new electronic market spaces will change the structure of value chains increasing the
number of intermediaries. There are two different kinds of “cybermediaries” to be
identified when talking about the increasing use of online car market spaces. There are
automotive service brokers and automotive information brokers. These brokers allow for
easier and cheaper comparison of prices and products and reduce the market power of
VM and car distributors. They are seen as serious competitors to the exclusive
distribution channel, although not being able to substitute the dealers (D.Selz, S.Klein,
1998, p.592).
The process will look as follows:
1. The customer recognizes he needs a new car,
2. The customer looks online for the available choices,
3. The customer compares the attributes and prices of the interesting cars,
Here there are two different scenarios; the customer can decide to purchase the car
based on the information on the web or the customer can decide to go to the dealer for a
test-drive and purchase the car from the dealer.
24
Purchase online
Purchase at the dealer
4. The customer purchases the car
of his choice.
4. The customer selects a few and
goes to the large, multi-brand
centre to make a few testdrives.
5. The customer picks the car up at
the nearby dealer.
5. The customer purchases the
car of his choice from the
dealer.
The profit is for the website, the
dealer receives a fee for physically
distributing the car.
The profit is for the
website receives the
advertising on the site.
dealer,
money
the
for
In 2007 50% of new-car-purchasers got information via the Internet (Quelle, DAT),
whereas 90% preferred to get the information by talking to a dealer. In the future these
numbers will change in favour of the Internet, since more customers will be acquainted
with the Internet and online purchases.
Information sources of new-car buyers
2006
other
advertisement
2007
1%
1%
21%
21%
50%
internet
41%
44%
42%
borchures
conversations with
colleagues/friends
50%
51%
test report
51%
48%
67%
63%
test drive
90%
conversations with dealers
84%
Figure 13 Use of Internet – new-car sales (source: DAT 2008)
When analyzing the used car market, 79% of the customer collected information using
the Internet whereas only 67% preferred to direct the dealer directly (DAT 2008).
25
Information sources of used-cars buyers
2006
other
information from after-sales
agent
2007
19%
20%
21%
20%
test report/advertisement in
print media
49%
46%
conversation with
colleagues/friends
68%
65%
79%
internet
74%
visiting new-car and used-car
dealer sites
67%
70%
Figure 14 Use of Internet – used-car sales (source: DAT 2008)
The Internet is not exclusively a threat for the VM, but can also be a tool for the VM.
Using the Internet, customers can be included into the development process (compare
example Dell in chapter 3.3.1). Ducati, on their website www.ducati.com, integrates its
customers in the product development process by making use of its fans affinity with
maintaining and personalizing their motorcycles, showing a high level of technical
knowledge (S.Hollensen, 2007, p.456). This helps Ducati to enhance their customer
loyalty, “because its fans are more motivated to buy products they helped to create”
(S.Hollensen, 2007, p.456).
7.
Conclusion
This paper shows that the automotive industry and as well the car distribution in Europe
is changing. In the future the independent as well as the direct distribution model will be
of importance in the German market. The Polish market is assimilating with the German
market that is already applying the multi-brand franchise model (compare chapter
5.1.6). The dealers understood that it is useful to provide more than just one brand.
Using this strategy, they can reach more customers and offer a bigger variety. Another
trend is the consolidation process. There are more big dealer groups entering into the
market. Therefore it will be harder for small dealers like family businesses in the future.
Another really important issue is the increasing importance in the Internet as described
in chapter 4 and 5. The Internet will be used as platform for proving information about
26
cars and prices. The manufacturer and dealer have participated in this trend. But selling
cars directly via the Internet will still be a niche market in the nearest future, as
described in chapter 6.
The last aspect which has to be mentioned is the comparison of the Polish and German
car market and car distribution market. Since Poland joined the European Union they are
catching up the western countries of the European Union. The polish economy and the
wealth of the population is increasing as described in part 4.2.2. But it takes times to
overcome all the differences to the western countries. But the PEST analysis of Germany
and Poland (see chapter 4) and the Five Forces analysis regarding to the car distribution
market in Germany and Poland (see chapter 5) have shown that there are still big
differences between these two countries. One example is the fact that in Poland the used
car market is still so important. It’s importance will decrease a little bit but in these days
and in the nearest future it will be still very important and a problem for the new car
market and the car distribution in Poland.
27
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9.
Appendix
Case Study Inditex
Inditex, Industria de Diseño Textil, the owner of the Zara franchise and seven other
brands, counts 3,245 outlets worldwide. Further expansion on a worldwide basis is
planned (www.news.bbc.co.uk).
“Its unique management model, based on innovation and flexibility, and its vision of
fashion (creativity and quality design, together with a rapid response to market
demands) has resulted in fast international expansion and an excellent response to its
sales concepts.”(Inditex, 2005) The Inditex business model shows a high degree of
vertical integration, thus creating flexibility that enables the company to respond to
changing customer demands in a short period of time. This is of great importance
especially concerning the continual changes in fashion. (Inditex, 2005) The time span
from creation of a design to the selling of the good in the store is about 4-5 weeks. New
articles reach each shop twice a week coming directly from each chains central
distribution centre in Spain. (P.Ghemawat, J.L. Nueno, 2003, p.9) Inditex’ “stores act as
market information gathering terminals, providing feedback to the design teams and
reporting the trends demanded by customers.” (Inditex, 2005) Inditex main strategy is
opening stores that are managed as well as owned by the company (sole or majority
shareholder). Regarding Inditex’ international expansion the company extends its “store
network” through franchise agreements with leading local retail companies. “At the end
of the 2004 financial year, there were 263 franchised shops out of a total of 2.244
stores.” (Inditex, 2005) Inditex’ franchise model is based on “the total integration of
franchised stores with company-managed stores in terms of window-dressing, product,
human resources, training, logistical optimisation” etc., ensuring a uniform image around
the world. (Inditex, 2005) Each of Inditex’ eight fashion distribution chains follows the
mission, that is “to be leaders in their segment through a flexible business model and an
international vision” and share central corporate services, e.g. “administration, the use of
logistics technology, the general HR policy, legal issues, and financial capacity, among
others”, while management team of each chain has the freedom to make commercial
decision independently and as well in terms of resource allocation. (Inditex, 2005) The
franchise fee Inditex charges the franchisee is between 5-10% of their sales.
(P.Ghemawat, J.L. Nueno, 2003, p.17)
In larger and more important markets Inditex
uses the strategy of joint ventures in order to overcome barriers to direct entry and to
obtain “prime retail space in city centres”. (P.Ghemawat, J.L. Nueno, 2003, p.17) Zara’s
German joint-venture partner is Otto-Versand. Their relationship is based on a 50:50
ownership split. However Zara remains management control, operating the shops as
“company-managed”. (P.Ghemawat, J.L. Nueno, 2003, p.17)
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Case Study Dell
Dell is the world’s second biggest maker of personal computers, after Hewlett-Packard but still remains number one in the American market. (www.economist.com) In the first
quarter of 2008 Dell owned a global market share of 15,7%, an increase of 0,9% from
2007 (www.economist.com).
Dell’s success is based on its direct selling model, which allows “clients to choose the
features they wanted, but keep costs down by selling only online, using generic parts and
maintaining an impossibly lean supply chain” (www.dell.com).
For Dell the “most efficient path to the customer is through a direct relationship, with no
intermediaries to add confusion and cost”. This enables Dell to individualize their
computers and tailor them to the customers’ specific needs (S.Hollensen, 2007, p. 455).
Dell’s business model rests upon five main principles: 1. Most Efficient Path to the
Customer, 2. Single Point of Accountability, 3. Build-to-Order, 4. Low-Cost Leader, 5.
Standards-Based Technology (Dell, 2008).
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