Posted: May 25th, 2022

Assessing the Current Industry Environment

Fiat Case Study

Fiat, once a global leader in auto manufacturing, is more challenged than the majority of other global manufacturers by the ongoing recession due to several macro and micro environmental factors. Despite their many strategic challenges as discussed in the case, the company has prospects globally due to their expertise with small car manufacturing. The intent of this analysis is to examine the extent of how macro and micro environmental factors influence Fiat’s current condition. A SWOT analysis and a summary of the best potential options available for the auto maker is presented at the end of this analysis based on the research completed. The company’s many macro-environmental factors are exacerbated by the current status of the global auto industry and the bail-out of American auto manufacturers by the U.S. government (Haldis, 2009). Fiat now is in control of Chrysler, a deal nurtured by the U.S. government in the hope of having the Italian auto maker assist Chrysler with its low-end auto development (Simon, 2009). Fiat’s greatest potential prospect is in taking the lessons learned in manufacturing, cost-reducing and servicing small cars into the emerging BRIC (Brazil, Russia, India and China) nations. As Chinese manufacturers lack expertise in auto manufacturing quality management techniques and also lack expertise in form, fit and function aspects of car design (Sargent, Matthews, 2009), Fiat sees significant opportunity by initially creating joint ventures to develop China as an entirely new market. Fiat’s management teams also hope to use the production capacity of Chrysler to respond to BRIC nations’ demand.

Assessing the Current Industry Environment

Beginning with the macro-environment, Fiat has in many critical areas of their value chain become very uncompetitive relative to other global auto manufacturers. While labor unrest, the continual Italian subsidies and barriers to competitors that its native nations’ government provided, and its eventual privatization combined to leave the company without consistency around its most vital processes. All these macro-environmental factors combined in effect robbed the company of one of its core differentiators and that was the knowledge of its employees and production workers. As Dr. Micheal Porter, Harvard Business School often has mentioned in his analysis, the greatest indicator of a nation’s competitiveness is personal productivity, especially in manufacturing-centric industries (Porter, 2008). Fiat has squandered this primary competitive strength away through the many interruptions, some minor as is the case with a brief strike, many major, including trade barriers, tariffs and the privatization of the company, which together have led to Fiat being continually in a state of process disorientation to their industry. Their product line successes, attributable to significant sales of specific compact and subcompact models each decade as the case points out is more of a function of the product life cycles of the company and less by deliberate design (Caputo, Zirpoli, 2001). This progression of model designs has succeeded despite the Italian government socializing the entire company at one point (Calabrese, 2000).

In conjunction with all these factors, Fiat also suffered from what many European auto manufacturers continually were challenged with, and that was being able to successfully sell globally, taking into account the variations in demand by country or region. This was a significant weakness on a macro-environmental level of Fiat, as many of its product divisions did not scale globally into new markets effectively (Roegner, 1994). As a result, the company continually faced the challenge of how to develop business in new markets without just relying on cash or pricing incentives to achieve their goal, a challenge nearly every European automaker trying to sell into the U.S. market continually faced (Roegner, 1994). This was partially attributable to the exchange rates of the Italian currency relative to those of nations the company was attempting to sell into, and across Europe this especially became an issue for the British firms also pursuing the same expansion strategy (Roegner, 1994). The Italian government would at times subsidize new market development in other nations specifically with the goal of assisting Fiat gain greater market share yet this rarely worked as the company’s internal processes were not at a globally competitive enough level of market leaders Toyota, Honda, Ford or the Big Three American automakers where they were more competitive.

These internal sourcing, supply chain, procurement, lean manufacturing and quality management (Ktyzkowski, 2009) however languished and often become deficient as a result of the many macro-environment distractions the company and European segments of the industry faced. In addition to these process-based deficiencies that became more prevalent over time, Fiat was gradually falling behind the global leaders in lean manufacturing, supply chain management, supply chain collaboration and the build-out of what would eventually become a global supplier quality management initiative for Toyota called the Toyota Production System (TPS). While Fiat was contending with massive change at the most fundamental levels of their business models, Toyota and competitors who were embracing more of a concept of creating supply chains that were highly collaborative, informed and knowledge of each other became a global priority (Dyer, Nobeoka, 2000). Starting in the 1960s and progressing to today, Toyota had been working extensively to create collaborative workflows with suppliers to better manage the new product introduction process, and the outgrowth of these partnerships was the supplier-manufacturer relationships became more anticipatory of future needs. In other words, Toyota was teaching it suppliers how to think ahead on product lines’ needs and also internalize quality performance measures (Dyer, Nobeoka, 2000). Supply chains globally as a result were becoming significantly more streamlined while Fiat did not strive to improve this area of their business to the extent Japanese manufacturers did (Roegner, 1994).

At the micro-environment level competitors concentrated on creating more role-based factories than relying on purely process-based ones that had dominated auto manufacturing globally for decades (Ferdows, 2006). Fiat completely missed this competitive dynamic as the Italian government sough to protect the industry from competitors while also ensuring a highly egalitarian level of workers’ rights. Despite these shortcomings the company did manage to create more effective uses of knowledge in their new product development process by including service lifecycle management data from repairs and returns (Becker, Zirpoli, 2003). At a micro environment level the company also struggled with the consistency of its partnerships. The allure of small car manufacturing expertise serves as the catalyst of several partnerships mentioned in the case including GM and Chrysler yet failed to materialize any long-term benefits. The acquisition of Chrysler, partially underwritten by the U.S. government, is one that relies heavily on new market development on BRIC nations (Simon, 2009). From Fiats’ track record at partnerships however it is questionable whether their participatory ownership of Chrysler will be successful or not. In addition to these micro environment factors there are many different businesses Fiat has entered as part of their portfolio approach to managing investment. Many of these were distractions to their core car business and would be sold off by the employee-based ownership teams (Calabrese, 2000). With all of these micro environment factors, the company continued to seek new product development as a means to generate increased revenue growth, relying on knowledge management systems to do this Becker, Zirpoli, 2003). This strategy of automating the new product development process was successful in streamlining what had been a very manual process and making it more efficient. Because if this, Fiat was able to continue to refresh their line of autos yet lacked the growing expertise of supplier relationship management, supplier quality management and supplier collaboration and performance management that their leading global competitors had (Caputo, Zirpoli, 2001). Because of these shortcomings from a micro environment standpoint, the company continued to struggle from a macro environment standpoint over time. An analysis of the company using the SWOT analysis framework is next presented.

Fiat SWOT Analysis

The foundation of Fiat’s strength is their ability to manage a broad portfolio of products and divisions. As the case study has shown however, this strength can lead to the company to over-extend itself into completely unrelated businesses relative to its core competency of auto manufacturing. Product portfolio management has also led Fiat to also develop its second major strength, which is strategic acquisition expertise. Despite being over-extended with its many completely unrelated product strategies, Fiat has shown the ability to quickly define acquisition targets and then go after companies that meet their criteria. That said this is a strength in itself yet only in the context of an effective strategic direction.

The weaknesses of Fiat emanate paradoxically from their strengths. They lack scale compared to competitors, both in the supply chain (Caputo, Zirpoli, 2001) and quality management (Simon, 2009) yet this is due to being in too many time-intensive businesses that divide their expertise. The second major weakness is in their product divisions, where the lack of knowledge management led to major changes in it systems (Becker, Zirpoli, 2003) yet the company still lags its competitors by a wide margin in this area. Toyota’s Production System (TPS) is an example of how far competitors have surpassed Fiat in the area of automating complex processes with it (Dyer, Nobeoka, 2000). In the case of Toyota they have focused on supply chain integration, collaboration and collaborative forecasting and replenishment (CPFR) workflows. What emerges from this SWOT analysis from a competitive analysis standpoint is that while Fiat was concentrating on product-driven strategies for differentiation, its competitors had embraced and were well on their way to making processes their core competitive advantage, especially those augmenting personal productivity (Porter, 2008).

Fiat’s opportunities however are significant. There is growing truck market demand, increasing demand for manufacturing equipment in BRIC nations and growing need fro construction vehicles in China and India. As Tata Motors has worked to dominate the passenger car market in India, there is no company focused on construction vehicle development. For Fiat, this presents a unique and highly differentiated opportunity.

The threats Fiat faces are comparable to many other global auto manufacturers, including the continued contraction of credit and therefore the entire auto market, nationalization of entire segments of the auto industry (Simon, 2009) and the potential for massive merger and acquisition activity. To alleviate the risks of these threats, Fiat will need to concentrate on creating more of a centralized strategy on autos and exit any business that does not contribute to their success in that market.

Recommendations and Conclusion

Fiat has exceptional brand loyalty and could feasibly choose to go up-market and become a luxury brand. There are the ultra-luxury brands renowned in Italy for their combining of engineering and design including Lamborghini, Ferrari and others. Fiat could potentially go upscale with a Lexus-competitive brand. This alternative however requires the company to excel in two areas it has struggled with. The first is the ability to consistently produce quality autos (Ktyzkowski, 2009) and the second is to create an effective global dealer channel. Because of these two factors, Fiat would be wise to not pursue a high end strategy.

The option that makes the most sense however given the company’s expertise in small vehicle production and global deployments is concentrating on the BRIC nations and expanding their reach into those markets. Given the fact that Fiat has traditionally excelled in the form, fit and function aspects of smaller car design, the strategy of going after the BIRC nations, specifically China, would be an effective one. The direction of the Chinese market to focus more on price and utilitarian designs fits with what Fiat does best as a manufacturer (Sargent, Matthews, 2009). Looking to the construction vehicle marketplace in China and all BRIC nations would be the best possible alterative today.

References

Markus C. Becker, and Francesco Zirpoli. 2003. Knowledge integration in new product development: The FIAT Autocase. International Journal of Automotive Technology and Management 3, no. 1,2, (January 1): 30-46.

Giuseppe Calabrese. 2000. Fiat Auto hands the wheel to its employees. Human Resource Management International Digest 8, no. 1, (January 1): 13-15.

Mauro Caputo and Francesco Zirpoli. 2001. A new organization for supplier involvement in vehicle design: The Italian automotive industry case. International Journal of Automotive Technology and Management 1, no. 2,3, (January 1): 301-320.

Jeffrey H. Dyer, and Kentaro Nobeoka. 2000. Creating and managing a high-performance knowledge-sharing network: The Toyota case. Strategic Management Journal: Special Issue: Strategic Networks 21, no. 3, (March 1): 345-367.

Kasra Ferdows. 2006. Transfer of Changing Production Know-How. Production and Operations Management 15, no. 1, (April 1): 1-9.

Peter Haldis. 2009. White House Creates Auto Task Force; Chrysler Asks for $2 Billion More in Bailout Loans. Global Refining & Fuels Report, February 25,

Ktyzkowski, B. 2009. Crash Course. Quality Progress 42, no. 7, (July 1): 12.

Michael E. Porter. 2008. The FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY. Harvard Business Review: Special HBS Centennial Issue, January 1, 78-93.

Roegner, Harry. 1994. Key issues facing European car manufacturers and their strategic responses. Business Economics 29, no. 4, (October 1): 18.

Sargent, J., and L. Matthews. 2009. China vs. Mexico in the Global EPZ Industry: Maquiladoras, FDI Quality, and Plant Mortality. World Development 37, no. 6, (June 1): 1069.

Bernard Simon. 2009. Chrysler deputy chief to bow out. Financial Times, August 22.

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