Essay Example on Automotive Industry: A Crucial Economic Sector

Introduction

The business model in the automotive industry is very crucial since it contributes revenue to the economic sector. The automotive industry comprises of a broad range of organizations and companies which deals in designing, manufacture, development, selling and marketing of towed vehicles, mopeds motor vehicles, and motorcycles. The automotive industry is a key industrial sector and economical around the globe; it manufactures and sells approximately 60 million trucks and cars yearly. According to Wells (2015), BMs are known to be evolutionary or dynamic in which they can alter over time, specifically in the emergence of a new market or technology. The business model is defined using three elements such as the value proposition which defines how services or products are offered to clients; the value network element which describes how the industry is expressed with other firms and internally and finally the context of incentives, government, prices, policy, and regulations. In the automotive industries, both barriers and opportunities to BMI exist, for the incumbent and new entrants (Chesbrough, 2010). The business model is viewed as distinctive from strategy, but in the automotive industry, it might be the nature of the BM itself to enable or constrains specific strategic options.

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An advanced automotive industry has well defined and developed business model. According to Wells (2015), market segmentation is made based on several types and classes of automotive products such as cars to attain diverse customers' tastes and realize maximum value. Value creation is realized through the composition of in-house competencies like the production of vehicle bodies and assembly together with procurement systems that control and coordinate worldwide supply chains and local clients. The value creation context in the automotive industry is the area in which major changes are currently evident (Chesbrough, 2010). Changes are mainly in the new emergence of large-scale help for electric vehicles (EVs) manufacturing by environmentalists and local and national governments with a motive to reduce the emission of CO2. Network value is achieved through the centralization of the manufacturing operations, which seeks optimal production economies of scale (Wells 2015). In the 19th century, three major innovations in the automotive industry business model arose; the Budd all-steel vehicles, the Ford moving assembly line, and the Sloan concepts which manufacture many brands and models and their related concepts. The changes in BM in the automotive industry have been the gradual process of a vertical breakdown away from the initial highly integrated Ford model (Chesbrough, 2010). Also, in the refinement and consolidation, gradual erosion of non-conformist BM has been experienced as the Ford-Budd-Sloan approach became progressively prevalent in the United States and other countries. Through the refinement process, the automotive business model has been able to attain significant improvement in product performance and quality at the same real cost.

The static view of the business model enables us to develop typologies and analyze the rapport that exists between a Business model and performance in the automotive industry (Yip, 2004). The static view in the managerial perspective provides a consistent image of the diverse BM components in the automotive industry and how they are organized. The static techniques in the automotive industry are often incapable of explaining the process of business model evolution since they do not target. Still, the transformational approach deals with the managerial questions of the industry; hence, it can assist managers of the automotive industry in reflecting on how they can make changes to their BMs for industry success and sustainability in the market. According to Yip (2004), the transformational model inclines to mobilize the business model concept to debate change instead of looking at how the business model of industry changes (4).

Challenges Faced By Automakers

At a glance of the automotive industry, it might seem the industry is performing well and does not face any challenges, but under the surface, things are not optimistic as others perceive. In the United States, the industry serves approximately 20% of retail sales and employs almost 18 million people hence contributing to approximately 3% GDP (Donada, 2013). The automakers and the whole industry experienced several challenges. The automakers face a challenge of environmentalist pressure and fuel reliance. Over a long period, the automakers have been caught between the pressure from environmentalists and customer's demands and government regulation about the CO2 emissions. The transportation sector accounts for approximately 30% carbon dioxide emission to the environment; therefore, the automakers are forced to progressively work towards mitigating CO2 emissions from their new business model approach. This, in turn, will increases car prices and reduces their performance and safety, and the vehicles made of fossils will be relatively expensive.

The other challenge faced by automakers is adopting the manufacturing of electric vehicles (EVs), which are environmentally friendly. Automakers are encouraged to manufacture electric vehicles since it produces 50% less carbon dioxide emission as compared to average gas-powered vehicles; hence the environmentalist and government strongly promote EVs (Donada, 2013). The challenge here is that automakers need to make an investment in manufacturing electric vehicles with the latest technology if they still need to remain in business once the stranglehold of carbon dioxide emission regulation tightens around their neck. Therefore, the automotive companies which cannot afford to produce solutions to mitigate CO2 emissions, which are relatively efficient and cheap, are likely to be kicked out of business. The challenge faced by automakers is also changing the automotive industry into connected, smart, and self-driving vehicles. The advancement of AI and the internet of things in vehicles are likely to change the automotive industry forever, which the automakers find it challenging to adapt to the new changes in the industry. Smart cars connected with self-driving will interact and drive without personal engagement. It will change how people travel, and this will be achieved through business model evolution. The automaker's challenges lie mainly in economic spheres and technological spheres and no specific-cut approach to overcome these challenges.

External and Internal Factors Influencing Automotive BM

Technology is an external factor that influences the automotive business model. Since the automotive industry relies mainly on the use of fossils fuels, sustainable technology influences mainly the prevailing practices. Therefore, the industry requires business models that transform certain characteristics of sustainable technologies in the industry into new approaches to develop economic value and out-compete the barriers that stand in the way of market penetration (Bohnsack, Pinkse, and Kolk, 2014). Sustainable technologies grip the promise to mitigate the harmful emission of CO2 and the efficient use of resources. However, sustainable technology faces challenges in penetrating the mainstream market. The barriers of market penetration are that technologies challenge industries' activities that rely on the use of gas and oil and automotive sectors, thus influencing the automotive business model.

Electric vehicles (EVs), the sustainable technologies influence the automotive BM since it faces a challenge of how to develop additional customer benefits aimed at compensating for the higher initial investment rather than conventional cars. Even though sustainable technologies attribute to mitigate environmental degradation, industries experience challenges on how to create a business model, which alters this attribute into a basis of economic value development. Suitable BM can increase the market attractiveness of technology advancement, enhance the full value capture of innovation, and lead to attaining a competitive advantage.

Comparison of a Static Business Model and the Notion Dynamic Business Model

A static BM is mainly utilized to specify the structure of the objects which exist in the problem domain in the industry, while the notion of dynamic BM refers to the act of representing the object interactions during the runtime in the industry (Demil and Lecocq, 2010). The dynamic BM explains the capability to automate business strategies within an open framework of the industry. Dynamic BM is mainly based on the principles in which the business logic of an application, like the one of the automotive sector, is controlled and managed independently from the servers which automate the services and procedures defined in the firm's logic. The static business model enables firms to create typologies and analyses the relationship between the business model of a firm and its performance. Also, it cannot explain the process of business model evolution. The dynamic business model comes from the interactions within and between the core model elements. The interactions between elements will follow the decision to create a new value proposition, to establish new combinations of resources, and the effects like adaptations will have on the other elements and their subsidiary components.

The notion of the dynamic business model refers to models that rely upon the components of time, particularly enabling the interaction between different variables over time. Also, the data-driven approaches in the industry are viewed as the dynamic business model when the information is updated daily (McGrath, 2010). Dynamic BMs estimates the types of firms that analyst deals with, and it demonstrates the ongoing changes in the organization. On the other hand, a static business model depicts one pair of relationships, like the events cost or time quantity.

The Difference between BM Innovation and Evolution

The Business model innovation refers to new innovations that complement the existing traditional subjects of product, process, and organizational innovations. It is noted that Business management innovation is a crucial phenomenon that requires be theorizing and conceptualizing on its own for the success of the industry. Organizational BMI represents more holistic and novel innovations that warrant theory development, testing, and operationalization. According to the surveys by early CEO-level, they point out that BMI is a major source of sustained value creation, even outmaneuvering new auto products and services as a basis of future competitive advantage (Demil and Lecocq, 2010). Notably, innovative business models have a positive impact on the performance of entrepreneurial firms, even in the varying environmental regimes. If the automotive industry uses innovative BMs, the industry will experience positive performance impacts, which result in high profits and consistent market sustainability (Massa & Tucci, 2013). The model also adds legitimacy to the rapidly-growing corporate and academic interest in the field. More so, it highlights the necessity for additional empirical and conceptual research on BMI targeted at developing a better understanding of the phenomenon.

Business model (BM) evolutions are seen as a fine-tuning process that entails emergent and intended changes both within and between its core components of the industry. The BM evolutions in the industry, according to the Penrosian model, underline the changes as the permanent state in the industry. The consequence found in the BM evolution is that the sustainability of industry relies on its ability to expect and act on the consequences of e...