Changing the rules - environmental issues and the automotive industry in emerging markets
By: Peter Wells, Wednesday, March 11, 2009, AutomotiveWorld.com
It has long been clear that if all the markets in the world adopted US-style automobility at US-style levels of car ownership, it would be unsustainable. For years the question was just how far emerging markets in particular could adopt personal private car ownership as a means to mobility, and at what pace markets would expand. Few questions were asked about which companies would come to share the financial rewards of expanding emergent markets, because the assumption was that, to a greater extent, existing players would do so. Equally, it was always assumed that the established and mature markets would provide the technological and regulatory leadership on environmental issues. It is now clear in a time of global recession that the rules have changed.
In the established markets, the grim struggle for corporate survival will inevitably result in financial conservatism and risk aversion: exotic, or even moderately expensive alternative technologies are not going to be attractive for companies desperate to keep factories running. Notwithstanding the attempts by various national governments to link corporate rescue with some sort of re-orientation towards green issues, the main focus is simply on staying in business.
It is no accident that the corporate saviours of the moment may well come from the emerging markets. Not only has Tata taken control at Jaguar-Land Rover, but also other companies from India and China have been repeatedly associated with the potential rescue of ailing companies such as Volvo, Saab and others. What is less than clear is whether, under new ownership, companies like Volvo will be able to continue to pursue their efforts at environmental improvement and technological innovation.
In short, we seem to have arrived at an unusual point in the history of the automotive industry. Most, though by no means all, alternative technologies and attempts at opening up markets for such technologies are grounded in the established markets of Europe, North America and Japan. Historically, this is where the expertise has been concentrated; this is where the regulatory impetus has been strongest; this is where governments have been the most supportive; and this is where consumers have been most sympathetic towards paying an environmental premium for innovative technologies. But right now, markets have collapsed, consumers have lost confidence and financial strength, and governments are more concerned at preventing the collapse of a sector that contributes anywhere up to 10% of GDP in countries like Japan and Germany.
So the leadership, in terms of both market growth and environmental issues may well pass on to the emergent countries, with entirely unknown results. Perhaps the environmental priorities of countries like Brazil and Russia will be different. Perhaps existing R&D in alternative technologies will seem an extravagance.
Alternatively, as the conventional automotive industry in the established markets concentrates on survival and rationalisation, on going 'back to basics', there may be a vacuum of opportunity for the myriad smaller businesses that hitherto have never been able to penetrate the suffocating cloak of the big brands. We live in exciting times, so the ultimate winners on this new battlefield are likely to be those with a bold and coherent strategy.
Dr Peter Wells is a Reader at Cardiff Business School, where he is a Co-Director of the Centre for Automotive Industry Research and leads the automotive industry research programme within BRASS, also in Cardiff University. He can be contacted on wellspe@cardiff.ac.uk or peterwells@automotiveanalysis.co.uk.
Published on Wednesday, March 11, 2009
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