According to Johnson, Scholes and Whittington (2008), core competencies refers to “the skills and abilities by which resources are deployed through an organisation’s activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain”. Developed by Hamel and Prahalad in 1990, simply stated, (a) it provides customers with major benefits, (b) it is difficult to imitate and (c) it can be leveraged in many products and markets. Differentiated from regular competencies and capabilities, Hamel and Prahalad (1990) highlighted the underlying role of a core competence. They likened the diversified corporation to a tree, with the branches and canopy representing the wide range of end product in the various markets. The tree trunk represents the core products or physical embodiment of the core competency, which must be significantly related to the benefits received by the customer. The root which provides nourishment and stability represents the underlying skills and capabilities that form the basis of the core competencies.
In zeroing on a company’s core competency, using the above-listed criteria, Hamel and Prahalad (1990) identified Honda’s expertise in the design and manufacture of engines as its core competency. Based on the company’s underlying skills and capabilities identified in Farhoomand and Huang (2010) case study, namely Honda’s superior R&D, manufacturing techniques, strong relationships with suppliers and dealer networks, marketing, knowledge of customers and culture of innovation, Honda has built on and exploited this core competency of engine design which forms the basis of Honda’s entry into other product markets, thereby enabling the company to develop a range of quality products from lawn mowers and snow blowers to motorcycles, cars and trucks, in varied markets around the world. According to Baitmangalkar (2004), although all automobiles possess power trains / engines, the uniqueness of Honda’s engine design in its automobiles allows users to “experience superior fuel economy, zippy acceleration, less noise and vibration”, - major benefits to global consumers. He states that Honda has further leveraged this competence, entering the aerospace industry with the HF 118 turbofan jet engine, manufactured for small business planes.
Core competencies that yield long term advantages for a company serve to provide it with a sustainable competitive advantage (sustained profits for a company that exceed the average for its industry). In an effort to attain such an advantage, it is necessary for a company to understand the factors affecting the industry. China’s large population together with its rising disposable income has made the country attractive to the big multinational firms in the automobile industry. The following PESTLE analysis provides insight into the macro-environmental factors (Political, Economic, Social/cultural, Technological, Environmental and Legal) related to the Chinese market.
The Chinese government plays a major role in the country’s auto industry, “a pillar industry in the Chinese economy” (Farhoomand and Huang, 2010). According to the case study, having joined the World Trade Organization in 2001, the Chinese automobile market has been opened up to the world, and many of the government’s has relaxed many of its policies and drastically lowered tariffs. Such actions have been in an effort to encourage growth of its local car industry, with the assistance and technical expertise of foreign manufacturers. Utilising foreign technology and design to manufacture domestic car brands, the domestic cars could better compete with the foreign brands. With regards to joint ventures between Chinese and foreign car manufacturers, the Chinese government has restricted the foreign company to a maximum ownership of 50% shares.
The Chinese government has also stipulated various objectives for the auto industry in its 12th 5 year plan....
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