Question

6. A 2014 article in the Wall Street Journal described the Chinese automobile industry as a “hodgepodge of companies”, most of which produce fewer than 100,000 cars per year. Ford Chief Executive at the time, Alan Mulally commented on the situation by saying “If you do not have scale, you just won’t be able to be competitive” Briefly explain what Mulally meant. (6 points)

Answer 1

Company size and industry structure determine scale strategy.

By this comment, Mulally wants to bring over the idea of economies of scale. A car manufacturing company needs certain scale of production in order to show profits and overcome the costs associated.The more you produce of something, the better you get at producing it?—?efficiency increases and costs decrease as production volume goes up.

That means that the largest company in this type of industry will have the best competitive advantage?—?the lowest costs and best production system.Operating in these industries as the little guy is not likely to be advantageous. The best chance of survival is to create a new value proposition other than cost (very hard in a commoditized market), offer incredible differentiated service, or find niche application and cater specifically to that demographic..

Thus bringing scale in production would help in long run sustainability of the company and more of all, infuse competitiveness in the industry which in turn would translate to innovation and research in order to gain competitive advantage. So, high quality products would be available.