Wednesday, December 13, 2006

Could GM Have Beaten Back the Japanese Auto Invasion?

I found this question on an alternate history site the other day. It got me thinking. Here is the question:

If you had been the top marketing executive at General Motors during the early years of the Japanese invasion of the US auto market, which strategy would you have recommended to defend GM's leading market share against this new competitive threat?

My response:

I find it somewhat difficult to put myself in the mindset of GM executives when the Japanese auto invasion began. Looking back, it is easy to apply an ex post de facto reading on events after they have happened. Although we know now that the Japanese auto makers are going to dominate, that outcome was not at all certain in the early 80s. The result was not pre-destined and GM perhaps could have found a counter and avoided losing significant market share. Any approach I would suggest now is based on a subsequent reading of events not known to GM at the time. Further, any suggestion I make now may have been anticipated and countered by the Japanese auto makers. They still might have come out ahead even had GM tried a different approach.

My first retro advice for GM comes from the Bible. 1 Corinthians 10:12 notes, “So then let him who thinks he is standing securely beware of falling.” When anyone is on top, getting a sense of complacency is dangerous. Circumstances change and the mighty can be brought low quickly.

Quinn (1980) wrote, “an effective strategy first probes and withdraws to determine opponents' strengths, forces opponents to stretch their commitments, then concentrates resources, attacks a clear exposure, overwhelms a selected market segment, builds a bridgehead in that market, and then regroups and expands from that base to dominate a wider field" (p. 160, 161).

Using the language of war, a counter offensive strategy might have made sense for GM in this circumstance. As Japanese companies expended resources to invade the American auto market, it would have made sense for GM to counter attack and attempt to cut into the Japanese domestic market. If the Japanese companies lost shares at home, they may have been forced to retreat to protect the home market.

Unfortunately, that approach would not have worked. The Japanese government at the time used extreme protective legislation to make it difficult for foreign companies to succeed in Japan. Although the American government may have been able to pressure Japan on GM’s behalf, it is unlikely that it would have done so. In the midst of the Cold War, Japan was an outpost flanking Red China and the Soviet Union. It was almost entirely defended by the American military and the American policy wanted a strong Japanese economy. A counter offensive probably would have failed.

As such, I would have recommended an expansion in the domestic American market. GM needed to aggressively go after American consumers using a market expansion strategy. That meant trying to go after several market segments at the same time. GM needed to go after value consumers who wanted a cheap vehicle as well as those who wanted a luxury car. This would have allowed them to protect their luxury market base but also allowed expansion into the low cost market before the Japanese could have defined themselves as the value car producers.

Such a strategy would have required a paradigm shift on the part of GM. The company had gotten used to catering to the luxury market. Black and Gregersen (2003) wrote that leaders fail to initiate change because they fail to see the need, they feel to act when they do see the need, or they fail to finish the change. As such, it would have been very important for GM executives to accept the need for change and then actually doing something about it other than continuing their previous business strategies.

References

Black, J and Gregersen, H. (2003). Leading strategic change: Breaking through the brain barrier. New York: Prentice Hall.

Quinn, J. (1980). Strategies for change: Logical Incrementalism. Homewood, Illinois: Richard D. Irwin.

2 comments:

CityUnslicker said...

I would agree with your analysis here. You should read too the famous Honda Case study and its various comments from the early 1990's. The best ever on understanding market entry by a new player and failure by the current market leaders.

Matt said...

GM and other US auto makers were at the mercy of the economy in the early 80's. Many people are of the opinion that the Japanese had superior manufacturing or, as suggested in this article, better tactics in the early 80's. I am of the strong opinion that the reason for the successful "Japanese auto invasion" was US currency appreciation. Between 1980 and 1985 the US dollar appreciated around 50% against its trading partners (close to 60% by some indices), including Japan. This meant foreign goods became much cheaper, and US exports became more expensive to foreigners. The Japanese automakers had a huge price advantage over American counterparts. This was how Japanese automakers were able to compete so effectively, and invade the market in the early 80's.