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UNIVERSIDAD DE LAS AMERICAS, PUEBLA

MASTER’S THESIS

COMPARISON OF PRODUCT LOCALIZATION STRATEGIES IN THE MEXICAN AND GERMAN AUTOMOBILE INDUSTRY AND THEIR

IMPACT ON PRODUCTION PROCESSES

AUTHOR: MARTIN BODEWIG

PRELIMINARY VERSION FOR

PROF. CARLOS ACOSTA

(Chair of Mechanical Engineering; [email protected])

PROF. JUAN JOSE ROJAS VILLEGAS (Chair of Industrial Engineering; [email protected])

PROF. DARIO PARRA ORTEGA

(Professor Industrial Engineering; [email protected])

UNIVERSIDAD DE LAS AMERICAS, PUEBLA

ONLY FOR DISCUSSION; CITATION, DUPLICATION AND ANY FORM OF PUBLISHING

PROHIBITED

UNIVERSIDAD DE LAS AMÉRICAS, PUEBLA

Escuela de Ingenería

Departamento de Ingenería Mécanica

Masters Thesis

COMPARISON OF PRODUCT LOCALIZATION STRATEGIES IN THE MEXICAN AND GERMAN AUTOMOBILE INDUSTRY

AND THEIR IMPACT ON PRODUCTION PROCESSES

Director: Prof. MC. Carlos Acosta Mejía

Chairman of the Department of Mechanical Engineering Universidad de las Américas, Santa Catarina Mártir, Cholula, Mexico

Author: Martin Bodewig

Universidad de las Américas, Santa Catarina Mártir, Cholula, Mexico Universität Karlsruhe (TH), Karlsruhe, Germany

1 Introduction page 2

Martin Bodewig 09/04

Acknowledgement This thesis was developed at the Department of Mechanical Engineering of the

Universidad de las Américas in San Andrés Cholula, Mexico.

My special gratitude I like to express to Professor MC. Carlos Acosta, Chair of the

Department of Mechanical Engineering of the Universidad de las Américas, who,

at every time, was guiding my investigation and giving me important inspiration in

countless discussions. His business contacts in the Mexican automobile industry

were of great help to this thesis. He is accountable to a great amount for the

successfully completion of this investigation.

I like to thank as well Prof. Juan José Rojas Villegas, Chair of the Department

of Industrial Engineering and Prof. MSc. Dario Parra Ortega, both of the

Universidad de las Américas and members of this thesis’ committee, for their

valuable suggestions and kindly support.

Furthermore, I like to express my appreciation to the companies Volkswagen de

México and LuK Puebla., both situated in Puebla, Mexico, that have participated in

this investigation. In sharing their practical experience in many interviews, experts

of these two companies have given important insights and essential suggestions

for this thesis.

San Andrés Cholula, January of 2004

Martin Bodewig



Contents

1 Introduction 8

1.1 Statement of the Problem ......................................................................9

1.2 Objectives of the Study........................................................................10

1.3 Limitations ............................................................................................12

1.4 Structure of Thesis...............................................................................13

2 The Mexican and German Automobile Industry 14

2.1 History of Automobile Production ......................................................14 2.1.1 Early Automobile Concepts..........................................................14 2.1.2 Beginning of Mass Production .....................................................16 2.1.3 Lean Manufacturing .....................................................................19 2.1.4 Internationalization.......................................................................19 2.1.5 Consolidation ...............................................................................21

2.2 The Automobile Industry in Mexico ....................................................24 2.2.1 Local Car Manufacturing ..............................................................24 2.2.2 The National Car Market ..............................................................28

2.3 The Automobile Industry in Germany.................................................31 2.3.1 Local Car Manufacturing ..............................................................31 2.3.2 National Car Market .....................................................................33

2.4 Upcoming Strategic Challenges..........................................................34 2.4.1 Customer Requirements and Individualization.............................35 2.4.2 Environmental Standards.............................................................35 2.4.3 Technological changes ................................................................35

3 Globalization and Localization in the Automobile Industry 39

3.1 Globalization.........................................................................................39 3.1.1 The Globalization of Markets .......................................................40 3.1.2 The Globalization of Production ...................................................40

3.2 Localization...........................................................................................40 3.2.1 The Localization of Products........................................................41 3.2.2 The Localization of Production.....................................................42

3.3 Glocalization .........................................................................................42

3.4 Homologation .......................................................................................43



4 Localization Influence Factors 44

4.1 Geographical Influence Factors ..........................................................44 4.1.1 Climate.........................................................................................46 4.1.2 Topography..................................................................................49 4.1.3 Infrastructure................................................................................51 4.1.4 Traffic Conditions .........................................................................55

4.2 Legal Influence Factors........................................................................58 4.2.1 Environmental Protection Laws....................................................59 4.2.2 Safety Standards .........................................................................68

4.3 Technological Influence Factors.........................................................70 4.3.1 Gasoline Quality...........................................................................70 4.3.2 Frequency Ranges and Multimedia Devices................................74 4.3.3 Material Regulations and Availability............................................75

4.4 Economical Influence Factors.............................................................76 4.4.1 Average Income...........................................................................78 4.4.2 Currency risks ..............................................................................79 4.4.3 Labour Costs and Productivity .....................................................81 4.4.4 Automobile Running Costs...........................................................82

4.5 Socio-Political Influence Factors ........................................................85 4.5.1 Demography ................................................................................85 4.5.2 Education .....................................................................................87 4.5.3 Personal Safety Issues ................................................................91

4.6 Cultural Influence Factors ...................................................................92 4.6.1 Language .....................................................................................93 4.6.2 Religion ........................................................................................94 4.6.3 Corporate Culture ........................................................................96

4.7 Summary of Localization Influence Factors.....................................103

5 Localization of Products 106

5.1 Localization Types .............................................................................106 5.1.1 Obligatory Localization...............................................................107 5.1.2 Discretionary Localization ..........................................................107

5.2 Economic Impacts of Localization....................................................106 5.2.1 Localization Advantages ............................................................106 5.2.2 Localization Disadvantages .......................................................107

5.3 Localization of Premium and Economic Cars..................................108

5.4 Localization in the Product Development Process .........................111 5.4.1 Product Development Process in the Automobile Industry ........111 5.4.2 Cultural Neutral Products ...........................................................112



6 Localization Impact on Production Processes 113

6.1 Mass-Customization and Build-to-Order..........................................113 6.1.1 Build-to-Order ............................................................................113 6.1.2 Mass Customization...................................................................114 6.1.3 Differentiation of Localization and Customization ......................115

6.2 Modularization and Platform Strategies ...........................................116

7 Product Localization Strategy in the Mexican Automobile Industry 117

7.1 Global and Local Business Strategy.................................................117

7.2 Global and Local Design Strategies .................................................119

7.3 Global and Local Production Strategy..............................................121

7.4 Competitive Advantage through Localization..................................122

8 Concluding Remarks 124

8.1 Conclusion ..........................................................................................124

8.2 Outlook................................................................................................124

9 Bibliography 126



List of Figures

Figure 1.1: Localization influence factors ............................................................... 9

Figure 2.1 : First “Reitwagen“by Gottlieb Daimler, 1885....................................... 14

Figure 2.2: First automobiles by Benz (Victoria and Velo).................................... 15

Figure 2.3: First moving assembly line // .............................................................. 17

Figure 2.4: Volkswagen Beetle............................................................................. 18

Figure 2.5: Concentration Process in Automobile Industry /DanJ-04/ .................. 22

Figure 2.6: Concentration process of automobile manufacturers /Wilde-04/ ........ 23

Figure 2.7: Global Car Maker Production Top 10, 2003 /ANDC-04/..................... 24

Figure 2.8: World Motor Vehicle Production by Country – 2003 /OICA-04/.......... 25

Figure 2.9: Vehicle Production in Mexico 1995– 2003 /AIMA-04/......................... 26

Figure 2.10: Locations of the Mexican Automobile Industry /AMIA-04/ ................ 28

Figure 2.11: Passenger Car Sales in Mexico and Germany 1994- 2003.............. 29

Figure 2.12: Mexican Passenger Car Market Shares 2003 /AMIA-04/ ................ 29

Figure 2.13: German Passenger Car Production 2003 /VDA-04/ ........................ 31

Figure 2.14: German Passenger Car Market Shares 2003 /VDA-04/................... 33

Figure 2.15: Technological Innovations in automobile construction /Merc-04/ ..... 36

Figure 4.1.: Detailed Map of Mexico /CiaF-04/ ..................................................... 45

Figure 4.2: Detailed map of Germany /CiaF-04/................................................... 46

Figure 4.3: Average temperatures of Mexico /INEGI/Fehler! Textmarke nicht

definiert.

Figure 4.4: Climate of Mexico /University of Texas, Austin/.................................. 47

Figure 4.6: Topography map of Mexico /Encarta World Atlas 2004/ .................... 49

Figure 4.7: Elevation map of Germany /Encarta World Atlas-2004/ ..................... 50

Figure 4.8: Mexico’s express freeways: /Texas University of Austin/ ................... 52

Figure 4.9: Street signs announcing a speed bump (Tope).................................. 52

Figure 4.10: Map of Germany’s express freeways /BMvW-04/ ............................ 53

Figure 4.11: Left and right hand drive countries ................................................... 56

Figure 4.11: FTP-75 test cycle ............................................................................. 60

Figure 4.12: NEFZ 2000 test cycle ....................................................................... 62

Figure 4.13: Volkswagen Pointer.......................................................................... 78



Figure 4.13: USD/MXN exchange rate chart 1997-2004 ...................................... 80

Figure 4.13: EUR/MXN exchange rate chart 1995-2004 ...................................... 80

Figure 4.12: Hofstede culture model of Mexico and Germany /HofG-83/ ............. 98

Figure 5.1: Obligatory and Discretionary Localization Influence Factors.............107

Figure 5.1: Product Development Process..........................................................111

Figure 5.3: Differentiation of Localization and Customization..............................115

Figure 8.2: Localization vs. Globalization advantages /PortM-87/ .......................118

Figure 8.2: Global vs. Local Design (/KniP-02/, p. 120).......................................120

Figure 8.3: Production Strategy Matrix ................................................................121

Figure 8.1: Fulfilment of Localization Factors ......................................................122

List of Tables

Table 2.1: Mexican Vehicle Production 2003 /AMIA-04/ ...................................... 27

Table 2.2: Mexican Passenger Car Sales 2003 /AMIA-04/................................... 30

Table 2.3: German Passenger Car Sales 2003 /VDA-04/ .................................... 34

Table 4.1: Summary of Geographical Critera /CiaF-04/ ....................................... 57

Table 4.2: Exhaust Emission Regulations in Mexico and Germany ..................... 61

Table 4.3: Summary of Legal Criteria................................................................... 70

Table 4.4: Fuel quality in Mexico and Germany ................................................... 72

Table 4.5: Summary of technological criteria........................................................ 76

Table 4.6: Comparison of Economic Facts of Mexico and Germany /CiaW-04/ ... 83

Table 4.7: Summary of Demographic Criteria /CiaW-04; WbP-04/....................... 86

Table 4.8: Summary of Educational Criteria /OecE-04; OEcL-04/........................ 89

Table 4.9: Summary of Cultural Criteria (/CiaF-04; HofG-83/).............................102

Table 4.9: Summary of Localization Influence Factors........................................103

Table 5.1: Localization of Premium and Economic Cars .....................................109

1 Introduction 8


1 INTRODUCTION

In today’s global world the availability of products around the globe is a matter of

course. With real-time internet communication and worldwide logistic networks it

seems easy to produce and distribute products in the global village. Standardizing

products across country markets was seen not only desirable because of

efficiency considerations, but also feasible because of the growing homogenization

of country markets. /LevT-83/

Nevertheless, these products have to be produced in one or more specific places;

as well, these products will be used in different countries throughout the world,

each one with different circumstances and a unique culture. Sceptics about

benefits and the feasibility of worldwide standardization arose. Adaptation of

products to specific market circumstances was and still is a strategic alternative.

The ongoing process of globalization is provoking even a rising importance for

localization, i.e. for the adaptation of product and processes to non-native markets,

as more and more foreign markets are developed. Products have to be localized

to the markets they target. Even more if a production site is established in the

target market, not only the product but also production processes have to be

adapted.

1 Introduction 9


Figure 1.1: Possible localization influence factors

In this process of product localization, many region-specific influence factors have

to be considered. There are geographical, economical, environmental,

educational, technological, socio-political, legal and cultural factors, which have

impact on engineering tasks, having impact on product design, product

development process and production processes. This thesis will analyse the

different localization influence factors for the Mexican and German automobile

industry and explain their impact on production processes. Localization strategies

and methods in the Mexican automobile industry are investigated.

1.1 Statement of the Problem

Through globalization and the concentration process in the automobile industry, all

car manufacturers have build up production facilities in many countries and export

their products to even more nations throughout the world. Standardization

strategies and the race for productivity leaded to global products, which are

available all over the world.

Technological

Educational

Geographical

Economical Cultural

Socio-political

Localization influence factors Environmental Legal

1 Introduction 10


Nevertheless it is not possible to manufacture the exactly same car for all

countries, e.g. due to different customer wishes, geographical circumstances and

governmental regulations. Neither it is possible to produce in the exactly same way

all over the world, e.g. due to different economic necessities or available

qualification levels. Therefore, when introducing a product to a new target market

or when transplanting an assembly line to another country, many car

manufacturers nowadays have to face acceptance problems of customers up to

serious quality problems in their production facilities.

Where productivity and costs are crucial for economic success, there has to be a

fast and reliable process for product localization. However, until today there is

missing a systematic approach to manage this transplantation process to non-

native markets. Region-specific influence factors on product and production

processes are mostly ignored. Many of the stated problems could be prevented, if

the region-specific influence factors are considered yet in the stages of product

design and development as well as in production planning.

1.2 Objectives of the Study

This study will demonstrate in which ways product design, product development

and production processes in the automobile industry are depending on region-

specific influence factors; focusing on the - in this respect not yet sufficiently

investigated - areas of product development and production processes.

Based upon a comparison of Mexico and Germany recommendations for

adaptations of the product development process and production processes to

region-specific influence factors will be elaborated. Finally, an integrated approach

of product localization strategies in the automobile industry will be presented. The

thesis will give a short outline of the two investigated countries, Mexico and

Germany, as well as of the automobile industry with their history, the situation

nowadays and upcoming strategic challenges. The product development process

and production processes in the automobile industry will be explained. Region-

1 Introduction 11


specific localization influence factors will be extracted through a comparison of the

different circumstances in Mexico and Germany, which influence product design

and production. It will be investigated how region-specific influence factors should

be considered on one hand in the product development process and on the other

hand in production processes and manufacturing systems.

The general circumstances that have to be created in order to establish a German

car production line in Mexico and suggested changes in the product development

process as well as in production processes are summarized to finally give

recommendations for the design of this assembly line translation processes from

Germany to Mexico.

To reality check and further detail the above gained results, an investigation of the

German car manufacturer Volkswagen de México will be made. In Volkswagen de

México, there are production lines, which are on one side especially designed for

México (New Beetle), on the other side translated from Germany

(Bora/Jetta) and therefore match in a very good manner all investigation

requirements.

The region-specific influence factors will be proven in this real-case scenario.

Based on the above-explained theoretical and practical investigations an

integrated approach to localization issues in the areas of development and

production in the automobile industry will be worked out. To summarize the results

of the thesis, a first draw of possible localization strategies and methods in the

Mexican automobile industry will be made. In accordance with the above

presented objectives of this thesis, the main research questions can be

summarized in the following way:

- Which geographical, environmental, economical, educational, socio-

political, legal, cultural and technical influence factors have to be considered

in the product development process?

1 Introduction 12


- Which geographical, environmental, economical, educational, socio-

political, legal, cultural and technical influence factors have to be considered

in the production processes?

- Which issues are important to design and operate an assembly line in

Mexico?

- Which changes have to be made in order to translate a car assembly line

from Germany to Mexico?

- What are the automobile product and process localization strategies for

Mexico?

1.3 Limitations

This thesis has a strong engineering background. Therefore, it will only detail the

region-specific influence factors to the grade necessary to understand their impact

on product design, product development and production processes. The influence

on product design will only be investigated because different product designs

influence product development and production processes. This thesis rather will

focus on the localization impact on product development and production

processes.

Furthermore, the term “localization” is used in many different ways: Generally,

localization is the determination of the locality (position) of an object. In industry,

localization is a way to adapt products for non-native environments. In

telecommunications, localization is a technique for determining the location of a

GSM cell phone user. In mathematics, localization is a certain technique in

abstract algebra; whereas in acoustics, sound localization describes how our ears

find the direction of a sound source. In web design, localization refers to the

adaptation of language, content and design to reflect local cultural sensitivities. In

this thesis, the term “localization” is only used in the above-mentioned economic

1 Introduction 13


meaning; i.e. adapting products and processes to non-native environments as

requirement and counterpart of the worldwide globalization.

1.4 Structure of Thesis

In the first chapter after the short introduction a detailed overview about the

objectives, limitations and the structure of the thesis is given.

The history of the automobile industry - focused on the two countries of interest

Mexico and Germany - will be outlined in the second chapter. Furthermore,

upcoming strategic challenges will be discussed. A detailed description of

globalisation and localization with a detailed definition of these concepts will be

presented.

In the third chapter, this thesis will inform about globalization and localization in the

automobile industry.

The following chapter is engaged to extract and analyse the region-specific

influence factors in the categories geographical, economical, technological, socio-

political, legal and cultural on product design, development and production

processes.

Classfications and impacts of localization on the product development process as

well as on production processes are analyzed in chapter 5 and 6

In chapter 7, a concept for a product localization strategy in the automobile

industry is elaborated. The consideration of localization in business, development

and production strategies will be investigated. Finally, an integrated approach to

localization issues in development and production is presented and a localization

strategy for the Mexican automobile industry is suggested.

In chapter 7 the gained results will be discussed, as well as an outlook to further

needs of investigation will be given.



2 THE MEXICAN AND GERMAN AUTOMOBILE INDUSTRY

2.1 History of Automobile Production

In the history of transportation, the automobile is considered the most

revolutionary invention since the wheel. Today’s automobiles are result of

centuries of innovation. The question of who has invented the automobile cannot

be answered easily. The inventiveness of many persons and a continuous process

of improvements had made it possible to convert the first so-called horseless

carriages to the automobiles we know today.

2.1.1 Early Automobile Concepts

Leonardo da Vinci already thought about power-driven vehicles in the 15th century.

In the late 17th century, the English physicist Sir Isaac Newton had proposed a

steam carriage. The French engineer Nicholas-Joseph Cugnot was the first to

realize a steam carriage - his so-called steam-wagon - in 1769, after the existing

steam engines were improved significantly by James Watt.

Figure 2.1 : First “Reitwagen“by Gottlieb Daimler, 1885



In 1859, the Belgian-born French inventor Étienne Lenoir was the first to build a

commercially successful internal-combustion engine. By 1876, German shop clerk

Nikolaus August Otto had improved on Lenoir's engine, and the Otto engine

became the model of the internal-combustion engines used today.

Figure 2.2: First automobiles by Benz (Victoria and Velo)

Germans Carl Friedrich Benz and Gottlieb Wilhelm Daimler worked separately and

almost at the same time; each designing and building the world's first commercially

successful cars. While Benz was focusing on the whole automobile, Daimler’s

main interest was the perfection of a high-speed injection engine. Daimler and

Benz are, essentially, the direct linear antecedents of the modern automobile. In

America, lawyer George Baldwin Selden studied many of the European engines at

the Philadelphia Centennial Exposition of 1876, and then redesigned what he

considered the best among them and patented his engine in the United States.

Charles and Frank Edgar Duryea are credited with the first production automobile

made in the United States. In order to keep up with the increasing demand for

those horseless carriages, Ransom E. Olds created the assembly line in 1901.

The new approach to putting together automobiles enabled him to more than

quadruple his factory’s output. The first automobile to be produced in quantity was

the 1901 Curved Dash Oldsmobile.



2.1.2 Beginning of Mass Production

In 1907, Henry Ford set the main goal for the Ford Motor Company: ‘to create a

motor car for the great multitude’. In these times, automobiles still were expensive,

custom-made machines. Ford's engineers started designing the Model T, an

uncomplicated, robust car, which offered no factory options. Following Ford’s

famous phrase “Any colour, as long as it is black” it even did not offer a choice of

colour.

The Model T got into production in 1908, keeping the same unique design until the

last one rolled off the line in 1927. Until then, 15 million cars were produced. It was

delivered worldwide, thus the Ford Model T can be considered the first world car.

The Model T at that moment was less expensive than most other cars, but it was

still not within reach for the "multitude." Ford realized that a more efficient

approach to produce the car is necessary in order to lower the price.

He and his engineers made a first interbranch comparison – which today would be

considered as “benchmarking”. Four principles were found useful to archive their

goal: continuous flow, division of labour, interchangeable parts, and reducing

wasted effort. To improve the workflow, he brought the work to the workers instead

of the workers moving around in search of their work. When finishing one task, a

new task was begun, minimizing the time spend in between. The division of labour

was done by breaking down the assembly into 84 exactly defined steps. Each

worker was trained to do just one of these steps. The approach of interchangeable

parts intended to produce the individual pieces of the car exactly the same every

time. Machines and cutting tools therefore had to be more accurate. However,

once this accuracy was archived, the skilled craftsperson that formerly made the

parts by hand could be replaced by a low-skilled worker.

Systematically implementing of these four principles resulted in the first moving

assembly line ever used for large-scale manufacturing in 1913. That lowered

manufacturing time from a day and a half to only ninety minutes. Ford's

manufacturing principles were adopted by countless other industries. Modern



automobile mass production, and the use of the modern industrial assembly line,

is credited to Henry Ford.

Figure 2.3: First moving assembly line //

While Ford was perfecting his Model T, William C. Durant established the General

Motors Corporation (GM) in 1908, combining the Buick, Oldsmobile, and Oakland

companies, and later on Cadillac. Chevrolet was added in 1918.

Among other U.S. automotive pioneers were Brothers John and Horace Dodge,

after whom the Dodge car is named, and Walter Percy Chrysler, a railroad worker

who later formed Chrysler Corporation. Ford, GM, and Chrysler, known as the Big

Three, eventually became the dominant automakers in America. U.S. assembly

line production satisfied the huge American market for vehicles and allowed

American carmakers to dominate early auto manufacturing. By 1916, the yearly

auto production reached one million units in the U.S.

In the late 1920s and early 1930s, General Motors Chairman Alfred Pritchard

Sloan, Jr., successfully challenged the dominance of Ford implementing an annual

model and offering different lines of cars at different prices, creating a ladder of

consumption that consumers could climb. European and Japanese automakers

were also growing in this new industry. In 1914 the company that later became

Nissan Motor Co., Ltd. completed its first car in Japan. Fiat produced automobiles

in Italy, and Daimler and Benz merged in 1926 to begin production of the



Mercedes-Benz line of automobiles. In 1928, the German manufacturer

Bayerische Motoren Werke AG (BMW, also known as Bavarian Motor Works)

began building automobiles.

Numerous automobile manufacturers, both big and small, existed during the early

years of the industry, but increased competition began to reduce the number of

companies. Many carmakers disappeared during the great depression of the

1930s. World War II then converted the automobile industry into wartime

production. After the war, American car manufactures found it difficult to meet the

rising demands. Europe and Japan had been busy reconstructing their

manufacturing capacity in the years following the war, and their smaller, more fuel-

efficient automobiles became popular with the American consumer. Volkswagen

AG began importing its Beetle to the United States in the early 1950s. Early

Japanese imports manufactured by Toyota Motor Corporation and Nissan were

introduced into the United States in 1958.

Figure 2.4: Volkswagen Beetle

As Volkswagen sales boomed during the 1960s, partly due to clever advertising,

the Japanese imports also grew in popularity. Toyota and Nissan eventually

passed Volkswagen in sales in the United States in 1975 and 1976. Imported cars,

with their lower price and better fuel efficiency, became very popular in the 1970s,

due in part to the rising cost of gasoline.



Due to the energy crisis, the U.S. government began setting fuel economy

standards. As American automakers struggled to meet these new demands,

Japanese imports skyrocketed. Japanese automakers, such as Toyota, Nissan,

and the relative newcomer Honda Motor Co. Ltd., also had the advantage of better

industry-government collaboration, newer factories, and a comparatively cheaper,

more disciplined labour force. By the end of the 1970s, Japanese automakers

were selling one of every four units sold in the United States.

2.1.3 Lean Manufacturing

U.S. automakers responded to Japanese competition by retooling their factories to

build smaller cars. They adopted successful Japanese methods, known

collectively as lean production. Examples of this method of production include

increased automation, quality, and smaller, so-called just-in-time inventories. Auto

companies responded to the fuel-consumption and air-quality demands by using

previously developed innovations like catalytic converters, electronic fuel injection

and turbochargers.

Japanese automakers shifted their emphasis in the late 1980s to luxury

automobiles, which competed directly against established American and German

luxury cars. These luxury automobile entries presented significant challenges to

existing luxury automakers, such as BMW and Mercedes. Both companies took

financial losses as a result, but they have since rebounded.

2.1.4 Internationalization

Internationalization has been the main strategic issue in the 1980s. To open up

new markets and to lower production costs, automakers and their main suppliers

are internationalizing their operations. At the same time, they attempted to

centralise product development and corporate functions in their home locations.

(/StuT-97/, p.2)



Sturgeon (/StuT-97/) explains that for internationalization efforts different strategic

reasons in respect to the type of the target market can be found.

Internationalization into large existing market areas, like the United States or

Western Europe, is chosen if automakers already have established a stable

market share through exportation, because of the high operating costs, low growth

rates and high competency in these markets. Benefits are the maximum goodwill

of host governments, no trade barriers, and the increasing loyalty of customers,

which tend to buy local cars.

Through locating manufacturing operations in countries that are near these large

existing markets, such as Mexico, Spain countries of Eastern Europe, advantages

of the low cost environment may be realized without giving up the trade benefits,

which, due to the existing or planned free trade agreements (like NAFTA or EU)

will still remain.

The most classical form of internationalization is, however, towards the big

emerging markets. Countries like Brazil, China, India or Vietnam have a very low

market penetration (e.g. car density) and a huge population. The growth potential

therefore is enormous, which attracts many foreign investments.

In the 1980s, mostly Japanese firms have build up production lines in the United

States, whereas in the 1990s, prevalent investments have been made by

American and Korean firms in the big emerging markets.

In this first important phase of globalization, European companies have been very

conservative with their foreign investments. (/StuT-97/, p. 5)

The response to the increasing complexity in operations, for example due to the

geographical distance, has been standardization of products and processes,

simplification and outsourcing. Developing worldwide identical – or global -

platforms, common processes and modularization strategies for assembly lines

aim towards a global standard.



2.1.5 Consolidation

Industry developments of the late 1990s focused on joint international ventures

among the strongest companies and global expansion into new markets.

Globalization has made it increasingly difficult to identify an automobile as the

product of one company or country.

General Motors, for example, allied with Suzuki and Isuzu in Japan to sell several

products internationally under GM nameplates. In 1998 Daimler-Benz AG merged

with Chrysler Corporation. Ford acquired the automobile division of Swedish

vehicle maker Volvo in 1999 to be part of Ford’s Premier Automotive Group (PAG)

with Aston Martin, Jaguar, Land Rover and Lincoln. Renault and Nissan formed

their strategic alliance in 1999, too.

A year later GM announced an alliance with Italian carmaker Fiat, which also

manufactures cars under the Ferrari, Lancia, and Maserati brands.

The German carmaker Volkswagen is divided into two brand groups: Audi and

Volkswagen. The Audi brand group consists of Audi, SEAT and Lamborghini;

whereas Volkswagen passenger cars, Škoda, Bentley and Bugatti are part of the

Volkswagen brand group.



Figure 2.5: Concentration Process in Automobile Industry /DanJ-04/

As shown in Figure 2.5, the consolidation process will continue to shrink the base

of suppliers. With rising cost pressures, but the requirement of new competencies,

and the resulting need for investment and hence capital, larger and fewer firms are

favoured. The number of suppliers is supposed to be halved to 2,800 by 2015.



Figure 2.6: Concentration process of automobile manufacturers /Wilde-04/

“Of the 12 independent automakers today––BMW, DaimlerChrysler, Fiat, Ford,

GM, Honda, Porsche, PSA Peugeot Citroën, Renault/Nissan, Rover, Toyota, and

Volkswagen – nine or 10 will likely remain independent.” (/DanJ-04/, p. 90)

50 (1964)

37 (1970)

30 (1980)

19 (1990)

12 (2000)



GM22%

Ford14%

DaimlerChrylser11%Toyota

11%

Renault/Nissan9%

Volkswagen9%

Peugeot6%

misc.4%

Fiat4%Honda

5%Hyundai

5%

Figure 2.7: Global Car Maker Production Top 10, 2003 /ANDC-04/

In the year 2003, the main automobile manufacturers General Motors, Ford,

DaimlerChrysler and Toyota together make up 58 % of worldwide production.

2.2 The Automobile Industry in Mexico

Mexico’s motor vehicle sector in the mid-seventies was characterized by outdated

machinery and incapable of competing in the international market. Today its

manufacturing plants are competing worldwide in automotive production /MorJ-96/.

Mexico is the world’s 11th biggest vehicle manufacturer.

2.2.1 Local Car Manufacturing

Mexico has become a global purchaser and supplier of passenger cars and

commercial vehicles. With annual motor vehicle production of 1,585,914 units in



2003, it is the 11th biggest car producer worldwide and the region's second biggest

producer after Brazil. (See Figure 2.8)

Figure 2.8: World Motor Vehicle Production by Country – 2003 /OICA-04/

Car production in Mexico after the economic crisis of 1994 was steadily increasing

by 30 %.

0,9043831,1605251,2796631,321631

1,5859141,8270381,846429

2,5461243,029693,17787

3,6200564,443686

5,50662910,286318

12,077726

0 2 4 6 8 10 12 14

BELGIUMINDIA

RUSSIAITALY

MEXICOBRAZIL

UNITED KINGDOMCANADA

SPAINSOUTH KOREA

FRANCECHINA

GERMANYJAPAN

UNITED STATES OF AMERICA

in Mio. Units



Figure 2.9: Vehicle Production in Mexico 1995– 2003 /AIMA-04/

General Motors de Mexico passenger car production lines are situated at Ramos

Arzipe, Coahuila. Models include the Chevrolet Chevy, Cavalier and Monza, as

well as cars sold under the Pontiac trademark. In Silao, Guanajuato, the Chevrolet

Pick-ups are produced, whereas in Toluca trucks under the Kodiak brand are built.

With a production volume of 471,619 units in 2003, General Motors is Mexico’s

biggest car producer.

DaimlerChrysler has big installations in Agua Nueva and Ramos Arzipe, both in

Coahuila, and in Mexico City to produce primarily Dodge RAM Pick-ups. Buses

and trucks are produced in Monterrey, Nuevo Leon and in Santiago Tianquistengo

in the State of Mexico. Passenger Cars like the PT Cruiser, Cirrus and Stratus are

produced in the Toluca plant, which is also situated in the State of Mexico.

in Thousand Units %-Change to previous year

30,1

-13,2

26,5

10,66,6

4,6

-3,8

-15,1

-2,4

0

500

1000

1500

2000

95 96 97 98 99 00 01 02 03-20

-10

0

10

20

30

40



Table 2.1: Mexican Vehicle Production 2003 /AMIA-04/

Rank Manufacturer Units Produced 2003

1 General Motors 471,619

2 DaimlerChrysler 308,738

3 Nissan 291,902

4 Volkswagen 287,253

5 Ford Motor Company 143,707

6 Honda 21,624

7 Renault 15,414

8 BMW 308

TOTAL 1,540,565

In Aguascalientes, Aguascalientes and in Jiutepec, Morelos the fabrication

facilities of Nissan Mexicana are situated. They produce the Tsuru, Tsubame,

Platina, Sentra and Lucino models as well as the Nissan Pick-up trucks.

Volkswagen de Mexico has a huge plant in Puebla, Puebla, to assembly the New

Beetle, the New Beetle Convertible, the Jetta A4 and the new Bora A5. In the year

2003, there were 287,253 units produced.

The Ford Motor Company has two main plants in Mexico: one in Hermosillo,

Sonora, another in Cuautitlán in the State of Mexico. Chassis and engines are also

fabricated in Chihuahua, Chihuahua, and in Monterrey, Nuevo Leon. Mainly Ford

Escorts and the Pick-up trucks are manufactured in Mexico.



Figure 2.10: Locations of the Mexican Automobile Industry /AMIA-04/

Honda de Mexico began production of the Accord in 1996 at a plant in El Salto,

Jalisco. The Clio and the Scénic of Renault Mexico are produced in small

factories in Aguascalientes, Aguascalientes and Juitepec, Morelos. BMW owns a

very small CKD (completely knocked down) assembly factory in Toluca, State of

Mexico.

2.2.2 The National Car Market

The Mexican Car Market is still an expanding market, with sales reaching 977,870

passenger cars in 2003. As shown in Figure 2.11, after Mexico’s economic crisis in

1994/95 the sales are steadily increasing. In comparison to Germany with annual

sales of 3,236 Mio passenger cars, Mexico is still a small car market.



Figure 2.11: Passenger Car Sales in Mexico and Germany 1994- 2003 /AMIA-04; KBA-04; VDA-04/

The concentration grade in the Mexican market is high. The big four General

Motors, Nissan, Volkswagen and Ford together are accountable for over 75 % of

the national sales (Figure 2.12).

Figure 2.12: Mexican Passenger Car Market Shares 2003 /AMIA-04/

in 1000 Units

GERMANY

MEXICO

3,236,938

977,870

0

500

1000

1500

2000

2500

3000

3500

4000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Total 977,870 units

DaimlerChrysler

10%

Honda3%

Seat2%

Nissan23%

General Motors23%

Others6%

Ford Motors16%

Volkswagen17%



Successful cars are the General Motors Chevy, the Nissan Tsuru and the

Volkswagen Pointer, all sub-compact or compact economic cars. The car density

in Mexico is still very low, only about 19 % of the population owns a car. This is

mainly because of missing financial resources.

Table 2.2: Mexican Passenger Car Sales 2003 /AMIA-04/

Rank Manufacturer / Trademark Units sold 2003

1 General Motors 217.965

2 Nissan 214.011

3 Volkswagen 169.235

4 Ford Motor Company 158.591

5 DaimlerChrysler 99.949

6 Honda 29.016

7 Seat 22.130

8 Renault 18.431

9 Peugeot 13.353

10 Toyota 9.839

11 BMW 4.461

12 Mitsubishi 3.922

13 Mercedes Benz 3.313

14 Audi 2.866

Other 10.788

TOTAL 977,870



2.3 The Automobile Industry in Germany

Germany is the world’s third biggest car producer after the United States and

Japan.

2.3.1 Local Car Manufacturing

Sales reached 5 Mio in 1998 and since then remained on this high level. A slight

increase in production of 0,4 % could be seen in 2003.

Figure 2.13: German Passenger Car Production 2003 /VDA-04/

Germany is home to some of the world’s premium car manufacturers, like BMW,

Mercedes Benz and Porsche. The biggest carmaker is, nevertheless, Volkswagen.

Foreign companies also have production facilities in Germany, like General

Motors, Ford and Toyota.

The BMW Group with its brands BMW, Mini and Rolls Royce is headquartered in

Munich, were also the 3 series cars are manufactured. Additional German

in Thousand Units %-Change to previous year

0,4

-3,3

3,0

14,3

-0,7

3,36,5

-3,4

4,1

0

1000

2000

3000

4000

5000

6000

95 96 97 98 99 00 01 02 03-20

-10

0

10

20

30



production facilities are situated in Dingolfing (5, 6 and 7 series), Regensburg (1

and 3 series), Landshut (production of tools) and Wackersdorf (parts). The only

plant outside Bavaria is located in Berlin, were motorcycles and vehicle parts are

manufactured. In 2005, a new production facility will be opened in Leipzig

(Sachsen).

The DaimlerChrysler Group is the world’s third largest car producer in terms of

sales. /DatM-04/ Its European headquarters is located in Stuttgart. The passenger

car brands comprise Maybach, Mercedes Benz, Chrysler, Jeep, Dodge and Smart.

Commerical vehicle brands are Freightliner, Sterling, Western Star, Setra and

Mitsubishi Fuso. The production of passenger cars is situated in Bremen (C-

Class, CLK, SL and SLK), Rastatt (A-class) and Sindelfingen (C-Class, E-Class,

S-Class, CL-Class and Maybach). In Düsseldorf, Ludwigsfelde, Mannheim,

Ulm/Neu-Ulm and Wörth, commercial vehicles such as light-duty commercial

vehicles, city and overland busses and light and heavy trucks, are produced.

Engines and parts are fabricated at the DaimlerChrysler plants in Berlin,

Gaggenau, Rastatt, Mannheim, Hamburg, Kassel and Untertürkheim.

Europe's largest car manufacturer is Volkswagen, which is providing a wide variety

of vehicles under its Volkswagen and Audi brand groups. The classic Volkswagen

group comprises Volkswagen passenger cars - such as Beetle, Golf, Polo and

Lupo - Skoda, Bentley and Bugatti, while the sporty Audi brand group includes the

Audi, Seat and Lambhorgini brands. Volkswagen-Nutzfahrzeuge sells various

commercial vehicles under its name, such as vans and light trucks, buses and

pick-ups. /DatM-04/ In Wolfsburg, the headquarters of Volkswagen is situated.

Plants in Germany are found in Wolfsburg, Hannover, Braunschweig, Kassel,

Emden, Salzgitter, Chemnitz, Dresden and Zwickau/Mosel. Audi is producing in

Ingolstadt and Neckarsulm.

General Motors is the world's number one car and truck manufacturer. The

company's brands include Buick, Cadillac, Chevrolet, Pontiac, Saab and Vauxhall.

Its German subsidiary Adam Opel AG is producing its cars in Rüsselsheim

(Vectra, Signum, and Omega), Bochum (Astra, Zafira) and Eisenach (Corsa,



Astra). Additionally, engines and motors are produced in Kaiserslautern. The Ford

Motor Company is producing the Ford Fiesta at its German headquarters in Köln

and the Ford Focus in its Saarlouis plant. The plants of the exclusive carmaker

Porsche are located in Leipzig (Cayenne, Carrera GT) and Stuttgart-Zuffenhausen

(all other models).

2.3.2 National Car Market

The German national market with a value of $ 54.02 billion represents 20.2 % of

the European automobile market. Despite of the 1.1 % growing in terms of value,

the German automobile market shrank in 2003 by 0.6% to record-sales of 3.4

million cars. /DatM-04/

Figure 2.14: German Passenger Car Market Shares 2003 /VDA-04/

The German Market is one of the most important car markets worldwide and the

largest in Europe, with annual sales of more than 3 Mio. Furthermore, Germany is

seen as one of the most demanding car markets worldwide. Volkswagen together

with its brands Audi, Skoda and Seat dominates the market. DaimlerChrysler with

Total: 3,236,938 units

Volkswagen19%

DaimlerChrysler

11%

Opel (GM)10%

BMW8%

Ford7%

Audi7%

Renault6%

Others32%



its strong German brand Mercedes Benz takes second place. General Motors with

Opel and Saab is on third position.

Table 2.3: German Passenger Car Sales 2003 /VDA-04/

Rank Manufacturer / Trademark Units sold 2003

1 Volkswagen 600,364

2 DaimlerChrysler 369,069

3 General Motors 332,270

4 BMW 253,376

5 Ford Motor Company 235,026

6 Audi 232,315

7 Renault 204,023

8 Peugeot 123,791

9 Toyota 110,200

10 Fiat 88,530

11 Skoda 87,402

12 Mazda 73,830

13 Nissan 70,395

14 Citroen 65,263

Other 391,084

TOTAL 3,236,938

2.4 Upcoming Strategic Challenges

The automobile industry will have to undergo further consolidation and cope with

mayor shifts of value among the market participants.

“The winners will be those companies that build up new competencies: software

development, mechatronics or digital supply chains, as well as new social and

cultural competencies within the framework of globalization.“ (/Merc-04/, p. 2)



Alongside with the need to lower costs and cope with competition, automobile

companies see increasing customer requirements regarding quality and safety of

their cars. A special, but worth mentioning issue, is the trend towards

customization. Furthermore, development of cars is increasingly guided by the

more stringent environmental standards in many countries. However, the main

challenges will be technological innovation, from microelectronics, innovative

materials up to production technologies.

2.4.1 Customer Requirements and Individualization

Customer’s requirements in highly demanding markets like Germany or Japan are

increasing, especially in the area of quality and safety. For medium and premium-

cars, the issue of individualization is already very important for customers. They

demand a unique car, adapted to their tastes and preferences. The VW Golf, for

example, can be reconfigured in more than a million ways. (/Merc-04/)

2.4.2 Environmental Standards

The increasingly more stringent environmental legislation is also a core issue in

car development. “In the next 10 years, cars will become about 30% quieter, fleet

consumption will fall by 15% and, thanks to new engines and catalytic converters,

the output of noxious substances will amount to only 1/1000 of what was

considered state-of- the-art just three vehicle generations ago.” /Merc-04/

2.4.3 Technological changes

A recent study by Mercer (/Merc-04/) has revealed the upcoming technological

innovations, which will have impact on the automobile industry. An overview is

given in Figure 2.15.



Figure 2.15: Technological Innovations in automobile construction /Merc-04/

“Module-specific innovations

The actual BMW 7 Series already embodies 90 innovations. This increase in

innovation marks the beginning of a trend that will encompass all modules that

comprise the vehicle. Over 250 innovations were identified, including pre-crash

sensors, sidewall torsion sensors for tires, night vision aids in the windshield,

steer-by-wire and pedestrian protection sensors.

Electrics/electronics as the key technology

Electrics, electronics and software will replace mechanics and hydraulics within the

vehicle, thus becoming the key technology in the field of vehicle construction. The

value of electrics and electronics in automobiles will grow from today's 22% to

35%. Virtually every module in the vehicle will be made »smarter« by these

technologies.



Integration and extended functionality through software

To interlink electronic components and vehicle systems, software development will

evolve into a key area of expertise in the field of vehicle construction. Bus

systems, operating systems and applications must all be interlinked using smart

technology. A practical example: A sensor in the rear-view mirror detects drops of

rain on the windshield and relays this information to the braking system. Regular,

light application of the brake pads on the brake disks ensures they are kept dry,

which reduces the stopping distance.

Modularization of chassis

The response of automobile manufacturers to the growing diversity of models and

versions is to devise new solutions in the field of vehicle construction. The

segmentation of the car into four modules, (passenger compartment, front, roof

and rear-modules; “Quartering the car”) and »Mosaic« are two of the strategies

that employ the modular construction principle in order to combine sections to

station wagons, sedans and coupes.

Alternative drive concepts

The fuel cell is coming – but not until 2015. Until then, the new technology will be

tested in mini-production series. Overall, however, the proportion of vehicles

powered by alternative drive concepts (gas, electric, fuel cell) by 2010 will be only

10%.

Innovative use of materials

Reducing a vehicle’s weight by 100 kg will reduce fuel consumption by

approximately 0.8 litres per 100 km. Such efficiency calls for the innovative use of

materials such as high-strength steels, metal foams, magnesium, ceramics and

aluminium. By 2010, weight will decrease by 17%, or by an average of 250 kg per

vehicle.



Changed production technologies

Mechanical engineers in Germany and Japan have decisive influence on the

success of their respective domestic automobile industries. Ongoing competition

between production technologies, the integration of components and functions,

optimization across the entire production process, and continual improvements in

precision will enable the national automobile industries in these two countries to

remain one step ahead of the rest of the world.” (/Merc-04/)



3 GLOBALIZATION AND LOCALIZATION IN THE AUTOMOBILE INDUSTRY

The automobile industry was one of the first industries that became global

business. The exportation of cars to foreign markets had been observed from the

very beginning of automobile mass production. Later on, also globalization of

production took place. In order to lower production costs or to better open up a

foreign market, assembly plants have been build in many worldwide locations.

3.1 Globalization

“A fundamental shift is occurring in the world economy. We are moving

progressively further away from a world in which national economies were

relatively isolated from each other by barriers to cross-border trade and

investment; by distance, time zones, and language; and by national differences in

government regulation, culture, and business systems. And we are moving

towards a world in which national economies are merging into an interdependent

global economic system, commonly referred to as globalization.” /Hill-01/

The increase in trade and movement of capital is the main evidence of this

globalization process. In the years from 1950 to 2001, world exports rose by 20

times /Msen-04/. The main drivers of globalization are the declining trade and

investment barriers as well as advances in communication, transportation and

information technologies. The costs of communication have fallen dramatically.

Cell phones, fax and internet unite people throughout the world. Word-wide

transportation is available either fast by airplane or economic by containerships.

Information technology is important to process global business orders and for

communication. Many daily items are already products of the globalization, like our

clothes, food and of course cars. Hill (/Hill-01/) describes that globalization has two

important components: The globalization of markets and the globalization of

production.



3.1.1 The Globalization of Markets

The merging of traditionally distinct and separate national markets into one huge

global marketplace is referred to as the globalization of markets /Hill-01/. In the

past, it has been argued that tastes and preferences of customers would converge

into one global norm, helping to create a global market. /LevT-83/ Companies like

McDonalds or Coca Cola are typical examples; their word-wide standardized

products are accepted by customers on a global basis. However, not all products

are successful in this way all over the world, because of still existent differences

between national markets like customer tastes and differences. Therefore, the

most global markets nowadays are not the markets for consumer products, but

markets for industrial goods like aluminium, oil and wheat; markets for industrial

products, like computer memory chips or commercial jet aircraft and of course

markets for financial assets. /Hill-01/

3.1.2 The Globalization of Production

The globalization of production of the other hand refers to the trend to source

goods and services to locations around the globe in order to take advantage of the

national differences in cost and quality of factors of production such as labour,

energy, land and capital. Companies aim to optimize their cost structure and to

improve quality and functionality of their products. To be competitive in a global

economy, for many companies following this strategy is inevitable.

Of course, like in the globalization of markets, there are remaining many formal

and informal barriers to achieve the optimal distribution of production activities

throughout the world. /Hill-01/

3.2 Localization

Despite of the already existing global product and worldwide production networks,

there are still very significant differences among national markets along many



relevant dimensions such as cultural values, legal requirements or economic

conditions. Products and production processes therefore have to be adapted to

non-native environments. This process is referred to as localization.

With the ongoing process of globalization - products are exported to more and

more foreign countries and production facilities are located all over the world - the

need for localization is rising. Furthermore, localization is actually one way to

archive globalization: the offering of specific adapted products for each target

market as well leads to a global business. Instead of fulfilling the requirements of

multiple markets, a product is adapted to satisfy entirely the needs of one local

market. (/GarA-03/, p. 16)

In accordance to the division of globalization in globalization of markets and

production, localization can be divided in the localization of products and in the

localization of production.

3.2.1 The Localization of Products

Products have to be adapted to their target markets. On one hand, they should be

adapted to meet exactly the requirements of customers, like their taste and

preferences and cultural values, to be able to offer a competitive product in each

market. On the other hand, there exist a plenty of factors, to which a product has

to be adapted, like national legislation, local geographic factors like climate or

specific technological norms and standards. “Localization is the process of

adapting a product to meet the language, cultural and other requirements of a

specific target environment or market (a ‘locale’). Localization and globalization

(internationalization) are mutually constitutive.” /RauF-02/

Thus, automobile companies will promote different car models depending on a

whole variety of factors such as local fuel costs and quality, income levels, traffic

condition, and cultural values. /Hill-01/



3.2.2 The Localization of Production

Production is also affected by different circumstances of each country. Legislation,

like environmental protection laws; economic conditions, like the labour costs; or

technological factors, like the availability of needed goods have to be considered

for localization. Therefore, not only products, but also production processes can be

localized. Particularly in technology transfer projects, processes have to be

adapted to local needs. (/GarA-03/, p.16)

3.3 Glocalization

To be able to offer products at competitive prices, a global production network is

needed. Standardization of products is a way to reach high production volumes

and lower costs-per-unit, exploiting the economies of scale. Especially cars with

their high development costs have to be manufactured with high volumes. A single

carmaker’s factory is then responsible to manufacture a specific car model for all

target markets.

However, this target markets are different in many aspects (see chapter 3.2),

making it necessary to adapt the global product to the locale circumstances.

Products are first globalized (standardized) and then have to be localized

(adapted) to local conditions. The neologism “glocalization” was formed through

the combination of the two terms globalization and localization. (/FitR-04/, p.130) It

represents the creation of products for the global market, but adapted to suit local

condition.

“As markets globalize, the need for standardization in organizational design,

systems and processes increases. Yet managers are also under pressure to adapt

their organization to the local characteristics of the market, the legislation, the

fiscal regime, the socio-political system and the cultural system. This balance

between consistency and adaptation is essential for corporate success.” /TroF-98/



3.4 Homologation

“Homologation (from the verb homologate, meaning to approve or confirm

officially) is the certification of a product or specification to indicate that it meets

regulatory standards. Homologation departments at car manufacturers concern

about the achievement of regulatory compliance. In case of a foreign target

market, homologation includes the product certification, with or without adaptation,

to local legislation. Homologation therefore can represent one very important part

of localization. However, It is not identical with localization, because important

adaptations, e.g. to fit cultural values, which are considered with localization, are

not included in the term homologation.



4 LOCALIZATION INFLUENCE FACTORS

In order to localize a car to foreign environments, many factors have to be

considered in the design and production of automobiles. In this chapter, the most

important influence factors have been analyzed. They are divided into

geographical, legal, technical, economical, socio-political and cultural factors. A

detailed summary is presented at the end of this chapter.

4.1 Geographical Influence Factors

Geography, the study of the earth’s surface, is focused on the description of

physical conditions like climate and topography of different location on the earth

and its interaction with human social and cultural development. Of course, these

physical conditions also have influence on product design and production

processes. Through a comparison of the Mexican and German geography,

differences will be extracted and their impact on product design and production

processes will be explained.

The United States of Mexico (local form: “Estados Unidos Mexicanos”) is situated

in the southwestern part of North America, bordered by the United States of

America in the North and by Belize and Guatemala in the South. The Caribbean

Sea and the Gulf of Mexico are bordering in the East, while the North Pacific

Ocean is bordering the country in the West.



Figure 4.1.: Detailed Map of Mexico /CiaF-04/

Mexico covers a territorial area of 1,964,375 km² and it is the 14th biggest country

of the world. /Ineg-04/

It is recognized for its amazing variety in topography and climate. There are sea-

near coastal plains and the large high plateau of central Mexico, which is

surrounded by the two major mountain chains, the Sierra Madre Occidental and

the Sierra Madre Oriental. The central plateau historically is attracting most of the

population. Mexico City, the capital of Mexico, is a gigantic metropolitan area and

dominates the rest of the country’s economical, political and cultural life. Almost

one fifth of the population lives in the capital.



Figure 4.2: Detailed map of Germany /CiaF-04/

The Federal Republic of Germany is located in Central Europe, bordered to the

north by the Baltic Sea, the North Sea and Denmark; to the south Austria and

Switzerland; to the east Poland and the Czech Republic and to its west it is

bordering the Netherlands, Belgium, Luxembourg and France. The capital with 3.4

million inhabitants is Berlin.

Germany covers a territorial area of only 357,021 km2. In comparison, Mexico’s

territory is 5.5 times bigger.

4.1.1 Climate

Mexico

Located at the same latitude as the southern Sahara Mexico’s climate varies

according to its topography, on one hand from deserts in the North to tropical rain

forest in the South, but also from the hot and humid conditions at the coastal

plains to drier and moderate thermal conditions at the central high plateau.



The temperatures on the high plateau, like in Mexico City, are very friendly. The

average temperature is about 23 °C. The hot and rainy season begins in June and

ends in October in most parts of the country. November to May is the dry but cold

season, whereby December and January are the coldest months, with possible

temperatures lower than 0 °C on the high plateau. Mexico City has an average of

2428 sunshine hours per year, with an annual global radiation of 6642 MJ/m2.

Figure 4.3: Climate of Mexico /University of Texas, Austin/

Germany

The climate in Germany is manifold. In summer, it is warm to hot, while in winter

snowfalls in the South and rainfalls the North are usual. Icy and snow-covered

streets are often seen in this season. The weather is cloudy, temperate and wet.

Sunshine is limited to an annual average of 1634 hours, with a resulting yearly

global radiation of MJ/m2.



Impacts

The climate is an important factor in dimensioning of the engines cooling system

and the air conditioning system, among others.

Mexico and Germany are normally classified neither as especially hot nor cold

countries. Examples of hot countries are many African countries (e.g. South

Africa) and Australia; whereas Russia, in especially Siberia, the northern

Scandinavian countries and Alaska can be considered as especially cold

countries. The German climate is temperate, whereas the Mexican climate is from

temperate in the high-plateau to tropical on coastal regions.

Measures for hot countries include changes in the cooling system to provide

higher cooling performance. Therefore, changes in the electric power supply could

become necessary. Often in cold countries, the steering gear oil has to be

changed to provide appropriate viscosity. Measures against snow blockage have

to be taken.

Furthermore, different to Mexico in Germany the coolant and the washer fluid have

to be frost proof down to -30 °C. To cope with the frequent snowfall in Germany,

cars are also equipped with all-season tires or even two sets of tires, one for

summer and one for winter use. The correct function of the air conditioning system

in countries with high atmospheric humidity has to be assured through a

modification of the system response curve. In the same way, appropriate heating

power has to be assured.

As temperatures in Mexico normally do not get below zero, the cold start criteria,

that is the minimum temperature at which the engine has to be able to start, can

be diminished. In Germany, a cold start has to be possible at temperatures as low

as

-30°C, whereas in Mexico -10°C can be considered sufficient. To start an engine,

a very powerful electric starter motor is required. The energy necessary is

delivered through a starter solenoid by the car’s battery. This starting system could

be adapted to the easier requirements of Mexico in order to save costs.



Plastics parts and cables are to be dimensioned for the temperature range as well.

Extreme cold as well as extreme heat can make these parts brittle and fragile. For

example, the wiring harness in the engine hood due to high temperatures and to

the high global radiation has to sustain great heat in Mexico. Rubber seals of

doors and the painting of the car have to withstand this radiation as well.

4.1.2 Topography

Mexico

Figure 4.4 demonstrates the elevation levels of Mexico. Its high plateau covers

almost all of the country and has an average elevation of about 1,500 to 2,500

meters, with the volcano Pico de Orizaba (5,700 m) as its highest elevation. With

many cities situated in the high mountains, the inclination of the streets can reach

high values.

Figure 4.4: Topography map of Mexico /Encarta World Atlas 2004/

Germany

Germany’s territory consists of lowlands in the north, the forested uplands in the

centre and the Bavarian Alps with the Zugspitze (2,963 m) as its highest elevation



in the South. As demonstrated by Figure xy nearly all of Germany’s traffic takes

place at an altitude of less than 500 metres above sea level, and the elevation

almost never reaches more than 1,500 metres.

Figure 4.5: Elevation map of Germany /Encarta World Atlas-2004/

Impacts

Due to the altitude of the Mexican highlands, most of the cars are used at a low

station air pressure. Due to the lower air density, the volumetric airflow is limited.

Due to the given stoichiometric mixture between air and fuel, less air intake leads

unavoidably to less fuel admixture. With less fuel intake, the engine’s output will be

lower. Therefore, the available engine torque and the performance of a car in

Mexico City (2,300 m) is about 20 -30 % less than on a sea-near level. While old

cars with carburettors need adaptation at high altitudes, modern fuel injection cars,

detecting the air-fuel ratio with lambda sensors and calculating the fuel needed in

their engine control unit, will easily balancing the low air density. Because of the

resulting lower performance of the engine, the engine’s workload will be even

lower as normal. To reach a good driveability of the car, it is appropriate to change

the car’s rear gear ratio by using an adapted differential to ensure a sufficient

acceleration. However, the expectations of clients, demanding huge acceleration



performance are not fulfilled this way. Therefore, the use of super- or

turbochargers, which through compressing intake air are not dependent on

ambient air density, has to be considered. Turbochargers are very common in

Mexico. Similarly, cars without turbo charging in Mexico often use a bigger engine

as their German counterparts.

One characteristic of Mexican streets is a high inclination. Together with the

omnipresent speed bumps, it forces drivers to often stop down and accelerate on

streets with very high inclinations. This, together with the lower engine torque due

to the altitude, is the reason to calculate the clutch with a different maximum

workload.

4.1.3 Infrastructure

Mexico

Mexico has a good - although rather expensive - toll express freeway system

throughout the country with a length of 6,429 km. The freeways are usually in

good conditions. The whole road system has a length of 329,532 km, from which

only a third (108,087 km) is paved.



Figure 4.6: Mexico’s express freeways: /Texas University of Austin/

There are many streets in bad conditions. Furthermore you can find many speed

bumps (local form: “topes”) with are a serious danger for the cars underbodies,

exhaust systems and axle, like many holes in the asphalt surface or damaged

manhole covers are as well.

Figure 4.7: Street signs announcing a speed bump (Tope)

Germany

The German freeways – so called “Autobahnen”, with an overall length of 11,515

km, covering nearly all of the country, are famous for their good quality standards

and - even more – for no existing general speed limits. Highways and inner-city

streets are as well in very good conditions. All of the roads are paved. /CiaF-04/



Due to their excellent freeways, Germans really make use of the available

maximum speed of their cars.

Figure 4.8: Map of Germany’s express freeways /BMvW-04/

Impacts

The roads of Mexico are in bad conditions. In addition, speed bumps are serious

danger to the oil pan, the gearbox and the exhaust system. The car has to be

modified in accordance to these conditions. A complete underbody protection or at

least protections of the oil pan and gearbox have to be applied. Furthermore, a

reinforcement of shock absorbers has to be considered. For nearly all passenger

cars, a lift up of the chassis frame is necessary, to gain a greater ground

clearance. “The critical clearance height for the poor road conditions is 170 mm.”

(/LyaN-01/, p. 149) Volkswagen de México for example increases the standard

clearance 10 mm for cars that will be sold in Mexico.



On Mexican highways, a speed of 80-120 km/h is adequate. On express freeways,

a speed of 120-140 km/h is usual. Cars in Mexico therefore do not need

aerodynamic parts and high performance brakes. These parts may on the contrary

be very vulnerable, due to the bad street conditions. If not considered essential

parts of the car (like in sport cars) it is likely for them to be taken out.

Due to the low high speed, gearbox and engine characteristics can be adapted to

reach high efficiency. Furthermore, it is very important to have a good acceleration

to be able to pull-in on highways on the very short Mexican drive-ups. This may be

reached by an adaptation of gear ratios. Furthermore, cars in Mexico (and the

United States) are normally optimized to a maximum speed of 75 mph (or 120

km/h). The combustion has to be optimal at this speed. Engine characteristics are

aligned in accordance (engine-application).

Germans like to go fast on their excellent autobahn freeway system, up to 250

km/h (most cars are electronically limited to 250 km/h) or even faster (there is no

general speed limit on Autobahnen). Of course, German cars need a high stability

even at this speed. Comfort aligned cars like in America have to be reinforced to

be stable. This can be reached by adjustment of springs and dampers (higher

stiffness) or a lower ground clearance (lower center of gravity). A low drag

coefficient gains importance at high speed. Aerodynamic parts to ensure good

road adherence.

The gear ratios have to be optimized for a good acceleration from 0 km/h to high

speed; different from American cars, with are optimized from 0 to 55 mph (ca. 88

km/h). In addition, the engine’s characteristics have to be adapted likewise.

Another important point is that German cars do need high performance tyres, with

are able to sustain the high speeds.



4.1.4 Traffic Conditions

Traffic conditions describe the conditions under which the car is used. They

therefore have influence on car design.

Mexico

In the Valley of Mexico City, you can find approximately 50 % of all Mexican cars.

Traffic in Mexico City is terrible; there is a lot of stop-and-go traffic nearly all times

of the day, and many people have to take 2 hours or more for their way to work.

Missing public transport systems and efficient inner city expressways are the

cause for a very high traffic density. It is hard to find a parking place inside the city.

Outside of Mexico City, in the more rural areas, sufficient space is available.

Mexico is a country with left hand drive, cars drive on the right side of the street.

Germany

The traffic density in Germany is very high as well. However, thanks to the many

free- and highways, to intelligent traffic influence system and to good public

transport systems the traffic is still fluently most times of the day. Parking space

inside cities is rare. On vacation time, traffic jams on the express freeways are

frequent, with overall lengths of 1000 km or more. Germany is a left hand drive

country, too.

Impacts

In Mexico as well as in Germany right hand drive vehicles are used. The right hand

drive is very different to the left hand one, and provokes many changes to the car,

e.g. in the arrangement of the drivers workplace, the headlights, the exterior

mirrors and the door lock. The arrangement of clutch, brake and accelerator

pedals however is identical everywhere in the world. In addition, the pattern of the

gearshift lever for manual transmissions is always the same.



Figure 4.9: Left and right hand drive countries

The dimmed headlight of the cars always aims slightly away from the middle of the

street, to avoid dazzling oncoming drivers. The headlight alignment therefore has

to be different in left and right hand drive cars. In Europe for example, travellers

from the UK are mounting special deflectors to their cars when driving on the

“wrong” side of the road.

Traffic conditions like in Mexico City have to be considered as well in the car

setup. For example, the cooling system and the air condition have to be stable

with the engine at idle most of the time for several hours due to the heavy stop-

and-go traffic. Crossing the city or even all the federal district can easily afford

more than three hours. The average working temperature of the clutch will be

different in these conditions, thus affecting the tear and wear rate, which is a direct

function of this working temperature.

Due to the high amount of cars in the Mexico City Metropolitan area and the

limited space there is a special need for small subcompact cars.



Table 4.1: Summary of Geographical Critera /CiaF-04/

Geographic criteria Mexico Germany

Location: Area 1,972,550 km² 357,021 km² Population (July 2004 est.) 104,959,594 82,424,609

Climate: Mexico City Berlin Temperature average 16 °C 8,9 °C Average high temp 23 °C 13 °C Average low temp 11 ° C 5 °C Highest temperature 32 ° C 35 °C Lowest temperature - 3 ° C - 23 °C Average morning humidity 79 % 86 % Average evening humidity 37 % 65 % Altitude above sea level 2234 m 50 m Average station pressure 780 hPa 1009 hPa Rain falls 634.3 ml/a 580.7 ml/a Average days with snowfall 0 49 Sunshine Hours p.a. 2428 h 1634 h Global radiation 6642 MJ/m2 3566 MJ/m2

Topography:

Elevation extreme 5,700 m 2,963 m Average elevation 1,500 – 2,500 m 0 – 500 m Average air density

Infrastructure:

Highway system total (1999 est.) 329,532 km 230,735 km Highway system paved (1999 est.) 108,087 km 230,735 km Expressways (included) (1999 est.) 6,429 km 11,515 km

Traffic: Drivers Position Left hand drive Left hand drive Number of cars in use (approx.) 12,300,000 43,000,000 Cars / 1000 Inhabitants (2002) 127 541



4.2 Legal Influence Factors

Legal regulations have a long history in the automobile industry. The first

legislations included limits on allowable speed and other basic traffic rules, mainly

to ensure the safety of all traffic participants and a smooth flow of traffic. //

Already in 1965, the first legislation concerning exhaust emissions was established

in California. These regulations were introduced in the whole United States in

1968. Since the United States was the biggest car market of the world, this forced

car manufactures throughout the world to adapt their products to the new

regulations.

Many countries followed this example and introduced their own environmental and

safety legislation. Shortly after, fulfilling the more and more strictly regulations

became a main challenge in the design of new cars. In the late 1970s, engineers

all over the world struggled to meet the new requirements; the production of cars

with poor quality and reliability was a logical result.

Today, manufactures even introduce new safety and environmental equipment on

their own initiative, understanding that this generates additional value for their

clients. Nevertheless, even nowadays, a great effort has to be put in fulfilling the

different legislations of all countries.

All together, the fulfilment of safety and environmental requirements implicates a

challenge in automotive engineering. Even more, meeting various legislations in

different countries could have great impact on car design. This chapter will try to

demonstrate the main legal requirements of Mexico and Germany, describing the

possible impacts on the car design.



4.2.1 Environmental Protection Laws

Environmental protection regulations always had and still have a strong influence

on car design. The development of exhaust gas after treatment devices was driven

by more and more stringent emission regulations. In this chapter, exhaust-,

evaporative-, carbon dioxide (CO2) and noise emission regulations in Mexico and

Germany will be presented. Of high importance are also the different used test

cycles to measure exhaust emissions.

Exhaust Emission Requirements

Mexico

The exhaust pollution regulations of Mexico are defined in the official Norm NOM-

042-ECOL-1999. /Ecol-99/ In comparison, the Mexican emission limits are less

strict than actual European and US limits. Between single values, differences of

more than 200 or even 300 percent can be found, like for the nitrogen oxides

(NOx). The values are given according to the Federal Test Procedure (FTP) of the

United States.

The exhaust pollution regulations have to be fulfilled also on high-altitude

locations, like in Mexico City, which is found 2,300 m over sea level. The obligation

of on-board diagnostics (OBD) is introduced gradually from 2001 until 2005. Board

diagnostic systems for both, the use in Europe as well as in the United States, will

be accepted in Mexico.

From 2006 until 2009 it is planned to introduce progressively US-Tier 2 or, as an

alternative the Euro 4 standards. The precondition for this intensification is of

course the availability of low-sulphur fuels, which are required by advanced

emission after treatment devices, necessary to meet the new regulations.

Unfortunately, national crude oil shows a high sulphur concentration and to

produce or buy low-sulphur fuel is expensive. Since the Mexican government is on

one hand owner of Pemex, Mexico’s only fuel production and selling company,



and on the other hand responsible for fuel quality regulations, it is a delicate

situation. However, it seems unlikely that until 2006 better fuel quality is available.

Figure 4.10: FTP-75 test cycle

The Mexican test cycle for emission certification is the US FTP-75 (Federal Test

Procedure), a test cycle that has been used in the United States before model

year 2000. It shows shortcomings in the representation of aggressive, high speed

driving and the use of air conditioning. The FTP-75 test cycle consists of three

phases: the cold start phase, transient phase and hot start phase. It represents a

distance travelled of 17.77 km with an average speed of 34.1 km/h. It takes 1874

seconds to complete the test cycle.

Germany

The Euro 3/4 limits are introduced by the European directive 98/69/EC. They were

accompanied by an introduction of more rigorous fuel quality regulations that call

for a minimum diesel cetane number of 51 and a maximum sulphur content of 50

ppm in 2005.



The Euro 4 standard is different for gasoline and diesel cars. Gasoline vehicles

have higher NOX standards but are obliged lower CO limits. Additionally, the

particle emission limits do not apply for gasoline engines.

Useful vehicle life in Euro 4 regulation is set to 100,000 km. The obligation for on-

board emission diagnostics systems (OBD) are phased-in between 2000 and

2005; Also introduced with Euro 4 is the obligation for low temperature emission

test (-7°C) for gasoline vehicles.

Table 4.2: Exhaust Emission Regulations in Mexico and Germany

Gasoline Diesel Criteria

Mexico Germany Mexico Germany

Exhaust Emission Values

HC [g/km] - 0.1 - -

NMHC [g/km] 0.156 - 0.156 -

CO [g/km] 2.11 1.0 2.11 0.5

NOX [g/km] 0.25 0.08 0.62 0.25

HC-NOX [g/km] - - - 0.3

PM [g/km] - - 0.07 0.025

Testing cycle FTP 75 NEFZ2000 FTP 75 NEFZ2000

Evaporative Emissions

Vaporization [g/test] 2.0 2.0 - -

Testing cycle SHED SHED2000 SHED SHED 2000

Group M1 < 2,500 kg

In Europe, the NEFZ 2000 test cycle (‘Neuer Europäischer Fahrzyklus’; European

Driving Cycle) is used for emission certification. After cold start, the ECE 15 urban

test cycle is applied 4 times, afterwards, an extra urban driving cycle (EUDC) is

completed. The NEFZ 2000 cycle takes 1180 seconds, and represents a distance

of 11.000 km. An average speed of 33.6 Km/h and a maximum speed of 120 km/h

are reached.



0

20

40

60

80

100

120

0 1180

sec

km/h

195

Figure 4.11: NEFZ 2000 test cycle

Due to the differences in both the speed and time profiles, the comparison of the

NEFZ 2000 and FTP-75 test cycles is difficult. At the beginning of the European

cycle, driving speed is moderate and the engine load is lower in comparison to the

FTP cycle. Therefore, the engine and the catalytic converter warm up slowly in the

NEFZ test cycle. However, this cycle considers cold start emissions from the

beginning, making a reliable statement about cold start emissions. The FTP test

cycle is dynamic, whereas the European test cycle is a more static one. Thus, the

FTP test cycle is more accurate, when the temperature of exhaust gases

increases steadily.

- Evaporative Emissions

A significant fraction of total emissions are evaporative

emissions of fuel vapour from the tank and fuel delivery

system. Three different types of gasoline fuel evaporation

have to be considered: Diurnal loss, hot soak loss and

running loss. Diurnal loss arises from the raise of fuel

volatility and expansion of vapour in the fuel tank because of

the diurnal rise in ambient temperature. Evaporation through



"tank breathing" occurs every day in all cars run by gasoline

fuel. Hot soak loss is the evaporation from the fuel delivery

system when a hot engine is turned off and the vehicle is

stationary. Running evaporating losses occur when the car is

in motion.

The ‘Sealed Housing for Evaporative Determination’ (SHED)

testing procedure is part of the emission regulations in

Mexico and Germany. In Mexico SHED testing is done

according to the FTP-75 test procedures, Germany follows

the SHED 2000 test procedure of Euro-4 regulation.

- Onboard Refuelling Vapour Recovery (ORVR)

Onboard refuelling vapour recovery systems are control

systems for emissions occurring during refuelling. Vapour,

trying to escape from the tank while refuelling is forced to a

canister containing activated carbon, where the hydrocarbon

vapour is temporarily retained. From time to time, these

vapours are removed from the canister and lead to the

engine for internal combustion.

- CO2-Emissions

In Mexico and Germany, there are no official legislative limits

for the emission of CO2. CO2 is an important causer of the

ozone-hole and the climatic change. However, in Europe,

the European Automobile Manufacturers Association

(ACEA) has voluntary committed itself to lower average CO2

emissions of all new cars until 2008/2009 down to 140 g/km.

- Fuel Consumption



The German association of vehicle manufacturers (VDA)

has signed a voluntary agreement to lower average fuel

consumption 25 % from the year 1990 to 2005. Despite of

this voluntary agreement, due to the German fuel prices, a

reduction of fuel consumption is a very important

development goal. Fuel consumption is, different from

Mexico, a main purchase criterion.

- Noise Emissions

The noise emissions regulations in Mexico and Germany are

quite similar, a additional adaptation of the engine or chassis

are not necessary. The Europeans permit 82 decibels of

noise emissions, measured at a distance of 8 metres from

the car’s track. In Mexico, the highest level permitted is 79

decibels at a distance of 7.5 metres.

Impacts

- Engine-application

The most important adaptations are made to the engine

itself. A new programming of the engine’s control unit is

necessary. The engine characteristic map has to be

optimized to the working circumstances, like temperature,

humidity, altitude and to local emission requirements.

Calibration of controllers, exhaust gas aftertreatment

systems and transmission has to be done. Engine and car

performance, as well as fuel consumption have to be

calibrated. Furthermore, as above stated, the engine has to



be calibrated to the exhaust emission regulations. Adapting

the engine’s characteristic map to the used test cycle is

hereby very important. All variables are interdependent,

making this task highly complex. An engine-application

therefore is very expensive and requires extensive

engineering knowledge.

The adaptation to give the car a brand-specific character in

terms of engine sound and drivability is done as well with the

engine-application.

A special engine-application for Mexico is not necessary,

due to the similar use of the United States FTP-75 test cycle

in Mexico. Cars fulfilling exhaust emission regulations in the

United States do over-fulfil Mexican regulations. Savings are

possible through modifications of additional aftertreatment

devices like catalytic converters, secondary air pumps and

exhaust gas recirculation systems.

- Number, type and load of catalytic converter

Due to different emission regulations, adaptations of the

aftertreatment devices are necessary. Normally, cars are

designed to fulfil strict California or Euro-4 legislation. When

localizing a car to Mexico, a new engine-application is not

economical. However, through the adaptation of

aftertreatment devices, economic advantages can be

realized. When there are two catalytic converters in use, it

may be possible to decrease the number of converters. In

addition, the type of catalytic converter, its size or the load of

noble metals can be varied. The most common type of

adaptation is the load of noble metals. Here, different to type

or size changes, no design changes must be made. Noble



metals are very expensive, so this is an easy way of

realizing economic advantages, making use of the non-strict

Mexican emission laws. In addition, a third lambda sensor is

often not necessary in Mexico.

- Secondary Air Pump

Big parts of the emissions accumulate at cold-start and in

the warming-up phase of the engine. Unfortunately, the

catalytic converter first needs to reach a defined temperature

to work properly. Secondary air injection can reduce these

cold-start emissions in gasoline engines. Fresh air is injected

into the exhaust system close to the exhaust valves during

the first seconds of a cold start. This causes the ignition of

unburned hydrocarbons and carbon monoxide, helping to

heat up the catalytic converter more quickly to ensure proper

conversion temperature. This additional combustion also

reduces uncombusted components of the exhaust air.

In Germany, nearly all gasoline driven cars have to be

equipped with secondary air pump systems to ensure

fulfilment of Euro-4 exhaust emission standards. In Mexico,

this additional part often is not necessary due to non-strict

emission regulations and the different test cycle. As

secondary air pump systems are expensive, significant

savings can be realized.

- Exhaust-gas Recirculation System

Exhaust-Gas recirculation systems are used to reduce

exhaust emissions. Especially in new direct fuel injection

engines due to the higher combustion temperature and the

air overhead, more nitrogen oxides (NOx) as in normal diesel

engines are produced. Through a reintroduction of exhaust



gas into the fresh air intake, the combustion temperatures

can hold down, to reduce NOx emission significantly. The

recirculation rate is limited due to the caused increase of

hydrogen carbonates (HC), carbon monoxide (CO) and

particle emission. The mechanical system is simple, but

control is complex. The type of exhaust-gas recirculation

systems may vary between German to Mexican gasoline

driven cars, due to the different allowed NOx emissions. In

diesel direct fuel injection cars, the use of gas-exhaust

recirculation systems is standard. .

- On-board diagnostic system (OBD)

Cars in Germany and as well in Mexico (from the year 2005)

have to be equipped with an on-board diagnostic system,

which is able to control all emission relevant functions of the

engine and aftertreatment devices. It must be able to detect

leakage in the tank to prevent evaporation emissions.

Malfunction of any part of the car’s emission control system

has to be indicated to the driver.



4.2.2 Safety Standards

Another very important driver of technological advance and innovation in the

automobile industry are the increasing safety requirements. Many innovations

have been made to ensure passengers safety. Chassis enforcements, safety

belts, airbags to modern active systems like distance radar and braking assistant

have been developed. Today’s investigation efforts aim at the development of

better driver assistant systems such as adaptive headlights or night vision

systems and as well on pedestrian security.

Mexico

In Mexico, consistent safety legislation is still missing. Despite of some matters of

course, like for example the existence of headlights and turn signals, there is no

clear regulation. Even crash test regulations do not exist.

Germany

In Germany, all directives of the European Commission have to be fulfilled. The

EuroNCAP crash tests are used. //

Impacts

Many car manufacturers build two different chassis versions due to the different

crash test regulations of the United States and Europe. Chassis for the United

States normally have additional reinforcements. Mexican cars therefore normally

use the cheaper European chassis. European cars do fulfil Mexican security

legislation nearly completely. Due to the huge amount of security directives of the

European Commission, only necessary additional adaptations will be presented.

First, Mexican cars require a fire extinguisher and two warning triangles in

compliance with the Mexican norm. Automobiles in Mexico also require two back-

up lights, and an additional identification number in the front windshield. The

windshield has to ensure visibility of this second identification number. The used

licence plate support is similar to the small United States version.



Table 4.3: Summary of Legal Criteria

Legal criteria Mexico Germany

Exhaust Emission Values

Applicable Norm 042-ECOL-1999 98/69/EC (Euro 4)

HC [g/km] - HC [g/km]

NMHC [g/km] 0.156 NMHC [g/km]

CO [g/km] 2.11 CO [g/km]

NOX [g/km] 0.25 NOX [g/km]

Testing cycle FTP 75 NEFZ2000

Evaporative Emissions

Vaporization [g/test] 2.0 2.0

Testing cycle SHED SHED2000

Crash Test Regulation - EuroNCAP

4.3 Technological Influence Factors

In this chapter, technical conventions, state-of-the-art, norms and standards will be

presented in this chapter as technological influence factors. Regardless of the fact

that some of them also are legal obligations, the focus in this chapter lies more on

factors, arising due of technical necessity or standardization needs.

4.3.1 Gasoline Quality

Gasoline is the most important energy source for individual mobility needs. Most of

today’s cars are equipped with internal combustion engines running with gasoline

or diesel. Newer technologies like hybrid or fuel cell cars are far from being

prevalent.

Gasoline is produced via a complex refinery process from crude oil. There are

various different crude oil types all over the world, which show significant



differences in quality, specific gravity and sulphur concentration. The quality of the

resulting gasoline needs to be defined by national regulations, which are of course

influenced by the characteristics of the crude oil available, among others.

Important characteristics of gasoline from an automobile manufacturer’s viewpoint

are the energy content, density, volatility, research octane number (RON), or

motor octane number (MON), as well as the lead and sulphur concentration,

among others.

Mexico

In Mexico, production, distribution and sales of gasoline are exclusively in the hand

of the government owned company ‘Petróleos Mexicanos’ (Pemex). Norms about

gasoline quality can be found in the official Mexican norm NOM-086-ECOL-1994.

/NOM-086/.

Crude oil from Mexico contains a lot of sulphur, reaching 3.3 percent by weight,

with an international average of 1.8 percent by weight /EIGI-04/. Only Venezuela,

Italy, Syria, Kuwait and Canada produce cruide oil with higher sulfur concentration.

It is not surprising that the sulphur concentration in Mexican gasoline is extremely

high, which is at 1.000ppm or 1% by weight in the normal gasoline (sales name:

“Magna”). The sulphur concentration in the high-octane gasoline “Premium” and in

diesel fuel is limited to 500ppm or 0.5% by weight. Mexican fuel is unleaded. The

volatility has to be adapted according to seasonal temperatures and altitude of the

location.

Furthermore, the “Premium” and diesel fuels are not available at every Pemex gas

station throughout the country. Especially in low populated areas, drivers with

cars that require high-octane or diesel fuel should be careful about their fuel

reserves.

A special niche product in Mexico is liquefied petroleum gas (LPG). It consists of

hydrocarbon gases, which are a mixture of propane and butane usually with small

propylene and butylenes concentration. It is often seen as 'green fuel’, as it



decreases exhaust emissions. It is widely available in the Mexico City Metropolitan

Area, like in other bigger cities as well. Although LPG has a high octane number

(RON) of 110, it has actually a lower energy content than lower octane petrol,

resulting in an over all lower power output.

Germany

In Germany, according to the technical norm DIN EN 228, three different types of

gasoline are offered: “Normal”, “Super” and “Super Plus”. Additional, there is of

course diesel (DIN EN 590) and in many places, you can already find alternative

fuels like bio diesel or hydrogen. More and more extremely clean and high-octane

gasoline is available, reaching octane numbers of RON 100.

German gasoline is generally unleaded, and it shows a very low sulphur

concentration from 50ppm down to 10ppm. In Germany, there exists a special

summer and winter fuel according to the temperature changes in Germany’s

seasons.

Table 4.4: Fuel quality in Mexico and Germany

Mexico (NOM-086-ECOL-1994)

Germany (DIN EN 228)

Gasoline type Magna Premium Normal Super Super Plus

Research Octane Number - - 91 95 98 Motor Octane Number 82 - 82,5 85 88 (R+M) / 2 87 92 86,75 90 93 Sulphur concentration [ppm] 1000 500 150 150 150 Lead concentration [g/l] 0.0026 . 0.005 0.005 0.005



Impacts

The available octane number determines to which rate the gasoline can be

compressed before self-ignition. The compression rate is directly related to power.

Lower octane in a non-adapted engine often caused knocking. Engines with

modern fuel injection and engine control units can easily compensate low octane

ratings, through its calculation of an adequate trigger time-point

Leaded fuel was used as a fuel additive to prevent knocking. However, after

identification of the environmental damages of lead, and the given incompatibility

with modern exhaust aftertreatment devices like catalytic converters, lead is no

longer used in Mexico and Germany.

A further exception is the use of fuel with a high ethanol-concentration, like in

Brazil, where for example special measures against corrosion have to be taken.

In Mexico as in Germany, unleaded and high-octane gasoline is available,

although in Mexico you may have inconveniences finding high-octane or diesel

fuel in hardly populated areas.

The most significant difference is the high sulphur concentration, which influences

in a negative way other exhaust emissions like hydrocarbons, carbon monoxide

and nitrogen oxide in a gasoline driven car, and particle emissions in a diesel

engine. In addition, sulphur creates corrosion, its gases, once combusted, are

corrosive, which could affect the engine, exhaust and environment. However,

usual catalytic three-way converters in passenger cars could be used safely with

the given sulphur concentrations.

Nevertheless, with high sulphur concentration like in Mexico, strict exhaust

emission restrictions, like Euro 4 or even Euro 5 regulations can barely be

reached. Moreover, new environment-friendly technologies like DeNox selective

catalytic reduction (SCR) catalyst for the reduction of nitrogen oxide (NOx)

emissions, in use mainly with direct injection engines, require low-sulphate



gasoline. A very low sulphur concentration is required In diesel technology to

improve the efficiency and the durability of particle filters and catalytic converters.

4.3.2 Frequency Ranges and Multimedia Devices

Frequency ranges normally are released through governmental regulations

according to the desired utilization. These ranges therefore differ from country to

country.

In automobile technology, more and more wireless technologies are used. The

radio was surely the first wireless technology, followed by radio remote control

door-lock systems, immobiliser systems, mobile phones, in-car wireless

communication systems (like Bluetooth) and GPS satellite navigation systems.

Fortunately, radio frequencies in Mexico and Germany are identical, newer

technologies like Bluetooth and GPS are word-wide standardized.

Mexico

Remote control door-lock systems in Mexico work on a frequency of 315 MHz, like

in the United States and most parts of South America and Asia/Oceania as well.

Mobile phones in Mexico are using the American Standard of 1900 MHz, and a

European -technology based GSM network is in build-up. Cars with DVD-Player

have to be configured to the region-code 4. A satellite GPS Navigation system is

not available.

Germany

In Germany, like in whole Europe and Africa, a frequency of 868 MHz is

prescribed for remote control door-lock systems. Frequencies for mobile phones

are the GSM standard frequencies of 900 and 1,800 MHz. DVD-Players in

Germany have to be configured to the region-code 2.



Impacts

The automobile manufacturer has to guarantee the use of the correct frequencies,

according to country’s regulations. Adaptations of transmitting and receiving

device of the remote door lock system have to be ensured, as well as software

configuration of multimedia devices.

4.3.3 Material Regulations and Availability

The production of goods depends on the use of raw materials. Different material

norms are used in Mexico and Germany. In Mexico, norms of the Society of

American Engineers (SAE) are used, whereas in Germany, DIN, ISO or EC-Norms

are prevalent. This could make it difficult to find exactly the same raw material or

purchased part in Mexico like in Germany. An important issue is the availability of

raw materials, which as well may vary between Mexico and Germany.

Different norms of Material use, like the European prohibition of heavy metals

usage, such as lead, cadmium, mercury and chrome VI. (Norm: 2000/53/EG)

Impacts

As shown, there are various reasons that make it necessary to change a material

in the assembly of a car. Additional testing and often-expensive liberation

procedures may be required. Cars produced in Mexico, but with export

destinations within Europe, are also affected by the European prohibition of heavy

metals.



Table 4.5: Summary of technological criteria

Techological criteria Mexico Germany

Standard fuel quality Research Octane Number - 91 Motor Octane Number 82 82,5 (R+M) / 2 87 86,75 Sulphur concentration [ppm] 1000 150 Lead concentration [g/l] 0.0026 0.005

Frequency ranges

Remote door lock systems 315 MHz 868 MHz Mobile telephone frequencies 1900 MHz 900 + 1800 MHz

Multimedia Devices DVD-Region Code 4 2 Bluetooth 2.45 GHz 2.45 GHz GPS-Satellite Navigation not available available

Material Availability Prevalent Material Definition SAE DIN / EN Prohibition of heavy metals do not apply apply

4.4 Economical Influence Factors

The economy of a country is a very complex system, covering production,

distribution and consumption of goods and services. The automobile industry as a

manufacturing industry producing consumer goods is in many ways affected by

economic influence factors. Of course, in this thesis only a small range of factors

can be presented.

A comparison of Mexico and Germany will explain economic factors that influence

on one hand product design like the average income or automobile running costs,

or on the other hand, the production processes like labour costs.



Mexico

The emerging nation Mexico is quickly closing the gap to the industrialized

countries. Its Gross Domestic Product of $ 941 billion (PPP, 2004 est.) is the 13th

largest of the world. Important manufacturing industries are producing food and

beverages, tobacco, chemicals, iron and steel, petroleum, mining (silver, iron, and

last but not least motor vehicles. Mexico is also an important producer of

agricultural products, e.g. vegetables like corn and avocados. /CiaW-04/

Mexico is a strong export nation, with the United States as its main trading partner

(87.6 % of exports) followed by Canada (1.8%) and Germany (1.2 %). The North

American Free Trade Agreement with the United States and Canada was

established in 1994. Mexico has signed free trade agreements with Costa Rica,

Bolivia, Venezuela, Colombia, Nicaragua, and Chile. It also established the first

transatlantic free-trade area signing an agreement with the European Union in

1998. Other free-trade agreements with Guatemala, Honduras and El Salvador

were signed in 2001. Ninety percent of its trade are now under free trade

agreements. Mexico is member of GATT and the World Trade Organization, and

also a full member in Asia-Pacific Economic Cooperation forum (APEC) since

1993 and the OECD since 1994. Mexico has the thirteen biggest proved oil

reserves in the world. It is a big oil exporter and an important supplier to the United

States. /CiaW-04/

Germany

Germany is a highly developed and industrialized country. Its economy is the

biggest in the European Union and the fifth biggest in the world, with a gross

domestic product (PPP) of $ 2.271 trillion. Germany is the world’s third largest

producer of automobiles. Other important products are iron, steel, chemicals,

machinery, machine tools and electronics. In new economies like IT and

biotechnology, Germany takes a leading position. It takes second place worldwide

in exports, only outperformed by the United States. Main export destinations are

France (10.6 %), the United States (9.3 %) and the UK (8.4 %). /CiaW-04/



4.4.1 Average Income

Until passing a certain value, the average income determines directly the

preferences of customers. It’s the most important purchase criteria in Mexico.

Mexico

Mexico is classified as upper-middle income developing country by the World

Bank. The gross national income per capita (Atlas-Method, 2003) of $ 6,230 USD

is one-fourth that of Germany. The income distribution remains highly unequal

/WorD-04/. Up to 40 % of the Mexican population live in poverty /CiaW-04/.

Germany

Germany has a gross national income per capita of $25,250 USD (Atlas-Method,

2003, /WorD-04/).

Impacts

The lower available average income in Mexico implicates a high demand for

economical cars in Mexico. High-end technology is not affordable for the average

Mexican consumer. Lightweight construction, fuel-efficiency and security

measures or comfort equipment are often too expensive.

Figure 4.12: Volkswagen Pointer



Economical and simple cars have great success in the Mexican market. The

production of the old VW Beetle for the national market until 2003 is a good proof

for this. Recently successful cars are the VW Pointer, imported from Brazil, and

the Nissan Tsuru, assembled in Mexico, both very economical cars with only basic

features. The VW Pointer for example is derived from the old Volkswagen B1

platform, which was used years ago for the first Passat. The level of raw emissions

is very high, due to its antiquated engine. The car is not able to fulfil European

emission standards or crash tests, but it was equipped with a nice chassis and a

beautiful dashboard. However, technology is outdated. It seems that styling and

even more the price, however, are crucial to succeed in the Mexican market.

4.4.2 Currency risks

Cost of operating in a global business environment is depending on the exchange

rate of the country's currency. Appreciation against other currencies will negatively

affect exports. In contrast, if Mexico's currency depreciates the country's products

will be the less expensive and more competitive.

Mexico

The national currency is the Mexican Peso. Mexico has a free flow of capital with

no exchange rate control by the government.



Figure 4.13: USD/MXN exchange rate chart 1997-2004

Germany

The currency of Germany, as of all members of the European Monetary Union, is

the Euro, with together with the US-Dollar and the Yen is one of the most

important currencies word-wide. In the recent past, the euro was gaining strength

over the US-Dollar.

Figure 4.14: EUR/MXN exchange rate chart 1995-2004

Impacts



Figure 4.14 shows the development of the Euro/Mexican Peso exchange rate.

From 2002 on, the peso was continuously depreciating, reaching 15 Pesos/Euro at

the end of 2004. The devalued Peso makes Mexican products very inexpensive,

thus increasing sales and profits. Mexican carmakers can earn dollars through

export to buy more devaluated pesos to pay for local raw material and labour. A

weak peso will also attract automobile manufacturers and suppliers to Mexico.

However, import of cars and automobile parts from Germany are getting more

expensive, making them less competitive.

4.4.3 Labour Costs and Productivity

Labour costs and productivity are important facts for local automobile production.

Mexico

Labour costs in Mexico are internationally still on a very low level. The hourly

compensation costs of production workers in manufacturing were at $ 2.48 USD in

2003. /BLS-04/ Productivity is high.

Germany

The labour costs in Germany are one of the worlds highest. Hourly compensation

for a production worker in manufacturing is at $29.91 USD, and therefore twelve

times higher than in Mexico /BLS-04/. Productivity is very high

Impacts

The low labour costs in Mexico make manual work affordable. This of course may

result in a lower automation grade of production processes. Actually, in many

assembly lines the work is done manually in Mexico.

Of course, this depends strongly on production volumes; at high volumes, the

investment, amortization and ongoing maintenance costs in comparison to the



labour costs may justify the use of robots. Only where high accuracy or process

reliability is needed, or whenever personal safety is at risk, robots have to be used.

4.4.4 Automobile Running Costs

Costs of ownership and lifecycle costs are more and more important purchase

criteria.

Mexico

To obtain a drivers licence is easy and cheap in Mexico. It is necessary to prove

visual abilities and take a short theoretical test. Costs are about $355 MNX (23.86

Euro) /SCT-04/. The tax for cars with Mexican Licence Plates (Road Fund

Licence) is 4% of car's (depreciating) book value per year. Gasoline costs $6.71

peso per litre, Diesel $6.50 Peso per litre in July 2004. With an exchange rate of

14.88 MXN/EUR, that is 0.45 Euro/litre for gasoline and 0.44 Euro/litre for diesel.

The costs of insurance are depending on type and model of the car and normally

are in between 5 and 15 per cent of the value of the car's value per year.

Germany

In Germany, it is very expensive to obtain a driving licence. Practical driving

classes with a personal instructor and theoretical classes have to be attended. A

difficult theoretical and practical exam has to be passed. Visual abilities are tested

and first-aid knowledge has to be proven. Overall costs are about 1,500 to 2,000

Euros. Car ownership is expensive as well. Car insurance costs depend on an

individual assessment of the driver, the car, and the desired conditions. For

example, the years without accident of the driver are considered. Taxes consider

also the type of car, specially the fulfilment of emission regulations. Early fulfilment

of stricter legislation is rewarded by lower tax. Fuel costs have been 1.157

Euro/litre for gasoline and 94.7 Euro/litre for diesel in July 2004.



Impacts

The lower fuel-price in Mexico decreases the need for fuel efficiency. This results

in a very low diesel rate in the Mexican market. Pick-ups with high gasoline

consumption are also widespread. Cars without electronic injection can be still

competitive in Mexico.

Table 4.6: Comparison of Economic Facts of Mexico and Germany /CiaW-04/

Economic criteria Mexico Germany

General Gross Domestic Product (PPP) (2004

est.) $ 941 billion USD $ 2,271billion USD

Economy Size (world ranking, 2004 est.) 13th 5th GDP per capita (2004 est.) $ 9,000 USD $ 27,600 USD Population below Poverty Line 40 % --

Average Income Gross National Income (Altas Method,

2003) 6,230 USD 25,250 USD

Currency Risks

Exchange rate (end of 2004) 14.88 MNX/EUR 0.067 EUR/MNX Exchange rate (end of 2002) 8.1 MNX/EUR 0.124 EUR/MXN Exchange rate (end of 1994) 9.8 MNX/EUR 0.102 EUR/MXN

Labour costs and productivity

Labour Force 34.11 Mio 42.63 Mio Average hourly compensation costs

(2003)1) $ 2.48 USD $ 29.91 USD

Fuel prices

Low-Octane Gasoline (Magna, Normal) 0.45 1.16 Diesel 0.44 0.95

Car Ownership

Insurance 5-15 % variable Taxes 4 % variable Service / Inspection variable variable

1) Production Worker in Manufacturing



4.5 Socio-Political Influence Factors

Demography as socio-political influence factor is able to describe to a limited

extend for example age structures of target customers.

4.5.1 Demography

General

The statistical science of size, growth, density, distribution, and vital statistics of a

population is known as Demography. In product development and in marketing, for

example for market segmentation and product placement, many strategic

decisions are influenced by demographic factors, like the median age of the

population or the percentage of the population, which lives in urban areas. A few

selected demographic factors of Mexico and Germany you can see in Table 4.7.

Mexico

Mexico’s population is still growing at a rate of 1.18 %. The population density is

low at 54 persons per square kilometre. The median age of the population is at

24.6 years and about 24 % of the Mexicans live in rural areas.

In Mexico, the family is still the most common way of living. Normally, children live

with their parents until marriage. Families with four or more children are still usual

in Mexico. In addition, a Mexican household often consists of three generations.

A special population hot spot is the Mexico City Metropolitan Area, an

agglomeration with about 22.5 million people. Population density average is about

5,700 persons/km2.

Germany

Germany is the most populated country in Europe, with a population density of 231

persons/km2. 88.5 % of the of the population live in urban areas.



The family as most common form of living has been redeemed by single- or only

nucleus family households. Families with more than three kids are rare.

The ageing German population shows a median age of 41.7 years.

Table 4.7: Summary of Demographic Criteria /CiaW-04; WbP-04/

Demography Mexico Germany

Population (July 2004 est.) 104,959,594 82,424,609 Population growth rate (2004 est.) 1.18 % 0.02 % Population density (per sq. km) (2005 est.) 54 231 Percentage Urban (2005 est.) 76 % 88.5 % Percentage Rural (2005 est.) 24 % 11.5 % Median age (2004 est.) 24.6 years 41.7 years Life expectancy at birth (2004 est.) 74.94 years 81.68 years Total fertility rate (children born/woman) (2004 est.) 2.49 1.38

Impacts

With a medium age of 41.7 years, Germany’s population is older than Mexico’s,

where the average age is 24.6 years. A direct impact on product development

obviously cannot be shown, but, together with a culture assessment, this is an

important fact to be considered. Young people have often other needs and

preferences than older people, which may result in different car utilization and an

adaptation of the car’s design, e.g. more stylish or more sportive variants.

An important factor in this context is the average family size in Mexico. In

Germany, the room in standard European subcompact cars is sufficiently for

nearly all transportation needs. In Mexico, where families are bigger, there is a

demand for cars with more space availably. Notchback cars are preferred by the

Mexicans. Unfortunately, these cars tend to be more expensive, and are often not

affordable. Consequently, regularly overcrowded and overloaded compact and

subcompact cars can be seen.



In Mexico City with its high population density and the very limited space, in

addition with its serious air quality problems, there is of course a certain need for

small compact or subcompact cars. Nevertheless, they should provide sufficient

space to the passengers as well.

4.5.2 Education

An automobile is a technical very complex product. For the use and simple

maintenance, certain qualifications are needed. For service and reparations in the

shop floors as well as in the production lines, high skilled and well-trained personal

is needed. Needless to mention that for the complete development and production

of a car, numerous highly qualified academics, mainly engineers, are

indispensable.

Therefore, the available education levels and workforce qualifications are an

important factor for the automobile industry. Education can be seen “as a

determinant of national competitive advantage” /PorM-90/.

Mexico

Mexico is aware that missing qualification of the country’s workforce is a serious

problem to face when aiming to reach global competitiveness. Therefore, the

investments in educations are rising fast. Mexico inverts 5.9 % of the GDP in

education, with spending on education rising faster than GDP per capita. Even

more, Mexico’s share of public spending invested in education is at OECD-record

level of 24.3 %. /OecE-04/

However, the spending for primary, secondary and tertiary level education remains

far below OECD average. Literacy is at 92.2 % /CiaF-04/. Only 21 % of the 25-34

years old have completed an upper secondary level education, which ensures

baseline qualifications and the university attainment level is at low 5 %. To give a

short insight on the quality of the Mexican education system, the results of the

OECD PISA 2003 study are presented briefly. In the PISA study the competence



of 15 years old in mathematics, reading and natural science are tested on an

international level. Among all OECD member countries, Mexico makes last place

in every category tested /OecE-04/. Detailed results can be found in Table 4.8.

Germany

In Germany 5.3 % of the Gross Domestic Product are expended on education.

Nevertheless, high additional private investments have to be considered in

Germany. The spending on primary, secondary and tertiary education is slightly

below OECD average, but overall 2-3 times higher than in Mexico.

Literacy in Germany is at 99 %. With 85 %, there is a far above average rate of

young people with upper secondary level education, thanks to the unique German

dual-system, a combination of upper secondary level education in public schools

and on-the-job training in private company. The university attainment level with 19

% is above OECD-average and four times higher than in Mexico. /OecE-04/

In the OECD PISA 2003 study, Germany is assessed slightly above average. In

spite of good attainment rates, Germany is going to suffer of a lack of qualified

workers because of demographic decrease of younger generations. Appropriate

measures are debated, but until now not fully implemented. /OecL-04/



Table 4.8: Summary of Educational Criteria /OecE-04; OEcL-04/

Education Mexico Germany

Investments in education Percentage of GDP invested in education 5.9 % 5.3 % Share of public spending invested in

education 24.3 % 9.7 %

Primary spending 1) 1,357 US$ 4,237 US$ Secondary spending 1) 3,144 US$ 5,366 US$ Tertiary spending 1) 4,341 US$ 10,504 US$

Results

Literacy (over 15 can read and write) 92.2 % 99 % Completion of Secondary II Education 2) 21 % 85 % University Level Attainment 2) 5 % 19 %

PISA 2003 OECD Results (Avg. Points / Rank)

Mathematical Literacy 3) 385 / 29 of 29 503 / 16 of 29 Reading Competence 4) 400 / 29 of 29 491 / 19 of 29 Natural Science Competence 5) 405 / 29 of 29 502 / 15 of 29

1) Purchasing Power Purity; 2) Among 25-34 years old; 3) OECD average was 500; 4) OECD average was 494; 5) OECD average was 500

Impacts

The qualification differences affects on different level users, mechanics, production

workers and engineers.

Mexican car users prefer simple, easy to handle technology in their cars. On one

hand, this includes the way of handling and interacting with their cars, as well in

daily operation as in simple maintenance tasks and on the other hand the used

technology in the car itself. The actual complex technology with many electronic

systems is hard to understand.

The more and more complex and demanding automobile technology, especially

due to the increasing use of electric and electronic technology, is a serious

challenge for many Mexican floor shops. With no or very low qualifications of

technicians the requirements for service and reparations of modern cars cannot be

fulfilled. Mexican independent shop floors are often very small, and they are often



family-run businesses. Sons learn the business from their fathers without any

professional training. Car diagnosis computers are also often missing.

Many sensible parts, like electrical car network or the electronic control unit of the

motor, on-board diagnosis systems, airbag technology, modern braking assistants

and dynamic stability systems cannot be attended adequately. This of course is

true as well for many comfort features, like electronically controlled air condition

systems. For modern cars, official dealers often have an affiliated floor shop,

providing the necessary equipment and technicians with sufficient qualifications for

every kind of maintenance, but official dealers often only can be found in big cities,

and only a small part of the population is able to pay for this very expensive quality

service.

In the production of automobiles there are as well many skilled workers needed.

Due to the bad education and low professional qualifications of job aspirants, the

car manufacturers have to prepare them on their own. Volkswagen de México for

example had to build up a complete vocational training centre, modelled on the

German dual system, to qualify future workers for their demanding jobs in the

production line.

Engineers as well are needed in every car plant. In Mexico, in many cases only

production is situated, with design, development and production planning done in

the home countries of the manufacturers.

The attractiveness of the automobile industry is very high, so finding good

engineers is not that difficult. Through the differences in the educational systems

however, they do show a lack of practical experience in comparison to German

engineers, because internships are not obligatory in Mexico and therefore still

unusual.



4.5.3 Personal Safety Issues

There is an inherent risk in taking part in public traffic. Even more, when crime is a

big issue like in Mexico City.

Mexico

To gain an accurate picture of the safety situation in Mexico, you have to

distinguish between the Mexico City Metropolitan Area, the border near zone with

cities like Tijuana and Ciudad Juarez, and the rest of the country. The Mexico City

Metropolitan Area is known for the high crime rates, as are many of the border-

near cities. The rest of the country, of course with many differences between

urban and rural areas, and between different states, can be seen as relatively

quiet.

For the Mexico City population the most important Government Issue is to face the

rapid increase in street crime. /EncW-04/. “Although statistics are unreliable,

observers agree that robbery, assault, and murder have increased dramatically

since 1994. Mexico City has gone from one of the safest metropolitan areas in the

world to one of the most dangerous.” /EncW-04/

Germany

Germany has overall very low crime rates.

Impacts

In Mexico City, there are more than 20 armouring companies. Anyone that

manufactures armoured vehicles in the world either has a production facility in

Mexico or else they have a sales agent. Therefore, this is probably the most

competitive armouring market in the world.

Furthermore, many cars are upgraded with additional safety enhancing features,

to better ensure safety to its passenger. A plastic is glued to the windows, and in

case the glass breaks, the parts still are glued in their position, making it



impossible for the aggressor to enter. Protection devices for mirrors, headlights or

hubcaps are also widely seen. Many cars in Mexico, even economic ones, do have

electronically immobilizer systems and motion detectors. The door lock is activated

automatically after start.

4.6 Cultural Influence Factors

It can easily be agreed upon that culture differs between distinct groups or even

more between nations. Culture can be defined as “set of knowledge, beliefs,

values, practices, conscience and organizational forms of a society” /Dela-97/. Hill

argues that culture is “a system of values and norms that are shared among a

group of people” /Hill-01/. Values herein are abstract ideas about what in life is

good, right, desirable or important. They guide the rest of the culture. Norms are

expectations of how people will behave in different situations. Others just see in

culture “the way in which a group of people solves problems and reconciles

dilemmas” /TroF-98/.

Culture is found at different levels. On its highest level, it is the culture of a national

o regional society. In a specific organization, is it referred to as organizational or

corporate culture. It is even possible to talk about the culture of particular functions

within organizations, and then described as professional culture. /TorF-98/

Culture affects international businesses in manifold ways: in managerial styles, in

the relations with and between the labourers and in the way they work as well as in

selling products in foreign countries.

Norms and value systems are an evolutionary product of an interaction with a

number of factors at work in the society, like political and economical philosophy,

social structure, the dominant religion, language and education. /Hill-01/

Several of these factors will be explained in the following.



4.6.1 Language

Language is one of the most obvious characteristics of a culture. Not only the way

we communicate with each other, but also the structure in how we perceive the

world is determined by the nature of a language. /Hill-01/

Mexico

In Mexico, the official language is Spanish. There still exist various Mayan,

Nahuatl, and other regional indigenous languages. English is only spoken by a

minority of the population.

Germany

The official language of Germany is German. Immigrants minorities may still only

speak there mother tongue, like for example Turkish. English is taught obligatory in

schools, making English a widely spread second language for Germans.

Impacts

The language as a communication means is very important for every part of a

business. Colleagues working together, dealers with their clients, marketing with

their target groups, and – last but not least – the product with its user - are using

language to communicate.

In automobile marketing, there are many examples on how language is used with

good intentions and poor results. This starts with model names. For example, it

should be assured that no kind of misfortune number is used /RauF-02/. General

Motors was troubled with exporting its new Chevrolet Nova to Spanish-speaking

Puerto Rico. “Nova” literally translated means “star”, but spoken its sounds like “no

va”, which means, “It doesn’t go”. GM had to change the car’s name. /RicD-83/.

The user’s manual and all signs and notices have to be translated to the local

language, to avoid incorrect operation as consequence of misunderstanding. New

automobiles technologies are raising the need for user interaction. Years ago,



communication in an automobile could be solved easily by little icons indicating

malfunctions. Nowadays sensors indicate the correct operation of safety or

environmental equipment or monitor the status of wearing parts. Communication

devices like Radio, CD, DVD, telephone or even navigation systems need verbal

information to ensure effective operation. In premium cars, there may be

implemented a speech control, with an obvious resulting adaptation need.

Fortunately, due to the increased build-in processor power and available memory,

many of these adaptations can be made without physical changes to the car or the

production processes. The language of all car devices can be programmed at the

end of production, by the dealers, or even by the user itself.

4.6.2 Religion

Religion is defined by Goodman as a “system of shared beliefs and rituals that are

concerned with the realm of the sacred” /GooN-91/. Religions are able to shape

attitudes toward work and entrepreneurship, having therefore implication on

business. The costs of doing business in a country can be affected by religion and

ethics. /Hill01/

Mexico

Roman Catholicism was established in Mexico during the Spanish conquest and

colonization as the dominant religion. The vast majority of Mexicans (89%) are

Catholics. Only about 6% of the population are Protestants. Other religions make

up the remaining 5%.

After the Mexican Revolution, Mexico has become an explicitly secular society.

However, Catholicism remained the prevailing religion. Mexicans often were forced

to convert to Catholicism by the Spanish Conquerors, which leaded – as people

remained in their previous belief system – to a fusion of indigenous religious

practices with Catholicism. Two famous examples are the common veneration of

the “Virgen de Guadalupe” (Our Lady of Guadalupe) and the “Dia de los Muertos”



(Day of the Dead) in which the European Catholic All Saints Day is combined with

indigenous rites of ancestor veneration.

Germany

In Germany about a third of the population is Roman Catholic (34%), another third

is Protestant (34 %) and again another third is unaffiliated or others (28.3%).

Through big immigrant population groups like the Turks, there also exist a minority

of Muslims (3.7%). /CiaF-04/

Noticeable is that nearly a third of the German population belong to none religion.

This especially can be seen in the area of the former Germany Democratic

Republic, which had officially been an atheist nation.

Impacts

Protestant ethics emphasize on the importance of hard work and wealth creation

for the glory of god and the abstinence from worldly pleasures. These values

facilitated the spread of capitalism. Protestant worked hard to accumulate wealth,

and – rather than spending it in worldly pleasures – reinvested it to help the

expansion of capitalist enterprises. The catholic promise of salvation in the next

world did not encourage the same working style among their members /WebM-58/.

Furthermore, the Protestant break-up with the hierarchical domination of religious

and social life – common in most of the history of the Catholic Church - gave them

more individual religious freedom. This may have encouraged them to transfer this

individuality to their economic and political surrounding. Individuality is a basic

value in entrepreneurial free-market capitalism. /Hill-01/

Mexican workers accept a rather fatalist position from their religion, which

discourages and leads them to laziness. Most Mexicans will never even try to

improve their conditions of life. All this is hard to combine with a modern

entrepreneurial environment.

Another astounding issue is the Mexican relation towards death. The above-

mentioned Day of the Dead is a good illustration for this. Unlike the Spaniards,



who viewed death as the end of life, the indigenous people of the Mesoamerican

Civilizations, like the Aztec Empire, though of it as an extension of life. Instead of

fearing, they embraced death. To them, life was a dream and only in death, they

become truly awake. Although the ritual since has been merged with Catholic

religion, the basic principles of the Aztec ritual remain. In Mexico, people still go to

the cemetery to visit their deceased loved ones, whose souls are believed to come

back on this occasion. They decorate gravesites with marigold flowers and candles

to guide the way and toys for dead children’s and bottles of tequila for adults’ souls

are offered. The Mexican attitude towards death therefore is different from the

Germans. Germans normally are more frightened by death and think of it as a

serious matter that no one wants to deal with. Mexicans however seem to laugh

and joke at death and do not fear it in the same manner. /MilC-04/

This affects Mexican behavior in traffic. Passing a six-lane freeway by feet, cycling

on freeways and driving completely drunken are common phenomenon in Mexico.

On the other hand, this has direct impact on product design, too. Car safety

systems like antilock braking system, dynamic stability control or airbags are not

considered necessary equipment by many Mexicans. Nearly all are unwilling to

pay for additional side- or curtain airbags. Car safety is not one of the most

important factors for purchase decisions as it is in Germany.

4.6.3 Corporate Culture

Corporate culture is defined as the set of values and principles under which the

different areas of a company develop their daily activities towards a common goal,

in a few words, it is the way of life of a company /GarA-03/. Professional culture is

a “set of meaningful cognitive, normative and valuing processes that defines how

the company’s workers will structure their actions toward their jobs” /Dela-97/.

Mexico



The Mexican worker is often referred to as a human being with deep inferiority

feeling, which is directly derived from the supremacy Mexico has been subjected

to for hundreds of years and constantly alimented by the comparison with other

countries. This feeling is leading him to distrust in himself, in what he does and in

those who surround him, making him susceptible, aggressive and macho.

Together with the social and economical problems he was forced to live in, he

became a worker with serious adaptation problems to modern, simplified and

organized working systems. /GuaR-88/ His sensitive and romantic nature is the

reason to avoid uncomfortable, negative or conflictive situations, making an open

discussion of the issues that arise in daily production work nearly impossible. For

the Mexican, giving straight answers is not obligatory and little lies are generally

accepted. Together with his aesthetic and dreaming mentality, it is hard for him to

recognize the practical requirements of the contemporary industrial world.

When comparing the Mexican workforce with one of the most industrialized

countries like Germany, the Mexican worker severely lacks willpower to change

what surrounds him; he is not reflexive and even less analytical. He has absolutely

no sense of time, is never previewing and definitely not devoted to work. If not

necessary, he would rather stay at home, enjoying a life devoted passionately to

his family, traditions, religion and party. /GuaR-88/

Germany

German workers are considered as hardworking, highly valuating success and

quality of work. They always aim to finish projects in time and are very punctual.

German companies usually promote employees according to their individual

performance and education and not like Mexican companies according to loyalty

and seniority. They like to plan everything they do and search for solutions that

will work fine the first time. This perfectionism often leads German engineers to

‘over-engineering’, a term referring to the over-fulfilment of requirements, for which

German products are admired but which are also often unnecessary. While

Mexicans are sensitive to critical feedback, in Germany it is widely accepted as a

positive manner for personal improvement. In Meeting Germans emphasize on



adequate appearance and serious behaviour of all participants, whereas Mexicans

like to establish a personal atmosphere before starting business talks.

The most famous study of workplace culture is probably the model of Geert

Hofstede /HofG-83/. He was able to isolate four dimensions to summarize cultural

differences – which are power distance, uncertainty avoidance, individualism vs.

collectivism and masculinity vs. femininity.

The first dimension, power distance, Mexico with its colonial past and its big

differences between social classes reaches a very high value. This is reflected in

the hierarchical structure of Mexican organizations, which are very authoritarian.

Mexican workers expect and accept clear instruction from their supervisors. In

Germany, with a low level of power distance, a very democratic decision process

is expected by the workers.

Mexico

Germany0

20

40

60

80

100High vs. Low Power Distance

Individualism vs. Collectivism

Strong vs. Weak UncertaintyAvoidance

Masculinity vs. Femininity

Figure 4.15: Hofstede culture model of Mexico and Germany /HofG-83/

In the individualism vs. collectivism dimension there is also a great difference

between Germany and Mexico. Germany has a high individualism value, which



implicates that open and direct communication as well as individual achievement

and freedom are highly valued. Workers can take decision immediately according

to the situation. Mexico is a collectivist society with the family as the most

important organization. Workers do not like to speak in front of various persons,

until they have formed an opinion in a trusted team. Membership to a group often

determinates the opinion of an individual. Mexicans are always searching

harmony, “they love and need personal relations. This fact is reflected in their

friendly and happy way of live” /AcoC-04/

The third dimension, uncertainty avoidance, measures the extent to which

societies are accepting ambiguous situations and are tolerating uncertainty.

Germany and Mexico reach relatively high values. They have a need for rules and

regulations; and managers are expected to issue clear instructions. Low

uncertainty avoidance societies are risk-friendly; there exist less general rules and

regulations.

In masculinity vs. femininity dimension, Mexico and even Germany are evaluated

as masculine societies. Conflicts are battled, supervisors act decisive, and

competition and achievement are considered important values. In feminine

societies, conflicts are rather to be debated, compromises are looked for, and

supervisors act intuitive.

Hill points out that the Hofstede model was elaborated in only one industry and

even in only one company. The study may be coloured by the company’s strong

corporate culture. Additional, culture does not stand still; it may have changed

since the study was undertaken. /Hill-01/

Impacts

The way a company works is part of a company’s corporate culture. Differences in

culture may result in different workforce fluctuations, different motivation at work,

different productivity and different managerial styles. In spite of the exactly same

production processes, there may result a different product quality.



For example, time-to-market concepts or life cycle management all are based of

certain ideas of time. “Time is increasingly viewed as a factor that organizations

must manage.” /TroF-98/. As shown, Mexican and Germans have a very different

view of time. Germans are very punctual and future-orientated, whereas Mexicans

are very unpunctual and present-orientated. Modern concepts, like just-in-time,

can therefore not be easily implemented in Mexico.

Moreover, most modern management techniques are from Anglo-Saxon origin and

still neglecting cultural differences even though applied worldwide. /TroF-98/ But

these techniques often have failed to fulfil expectations due to the difference in

local culture. Management by objectives is successful in Germany, but may not be

in Mexico.

In production, there exist many concepts for quality assurance, productivity

increase or preventive maintenance. Like lean production, they are mainly adapted

from the Japanese industry. The Toyota production system is a good example.

Still, after years of exact copying, western car manufacturers did not reach the

same productivity.

Production systems and tools are affected by culture. For example, it cannot be

expected from a Mexican worker to participate in Kaizen, or any kind of continuous

improvement process (CIP). Due to his strong catholic background and his

resulting fatalistic position, he accepts his circumstances as fate, without thinking

about how to change it. Furthermore, continuous improvements require a long-

term view of things, but Mexicans tend to live only in the present moment. Third,

continuous improvement most often depends on individual suggestions –

collectivism in Mexico therefore is another barrier.

On the other hand, Total Quality Management (TQM), like all quality control tools,

does not tolerate any uncertainty and therefore favours cultures with high

uncertainty avoidance like Mexico and Germany. The enforcement of strict rules

and regulations is important to ensure quality. Therefore, a high power distance -

which can be found in Mexico - is useful, too.



Teamwork in production is appreciated by Mexicans as collectivistic society, as

long as its members are all known to each other and they have formed a network

based on trust. /AcoC-04/. Once Mexicans have established their “stability zone”,

Mexicans do accept competence and like to reach achievements.

In the area of product development and production planning, uncertainty decisions

cannot be accepted. Especially development is teamwork, involving all hierarchical

levels. A high power distance constraints open discussion with supervisors.

Certain decisions have to be made fast and by individuals. In addition, Mexicans

are very sensible of critical feedback, they tend to avoid intensive discussions.

Ambitious development targets obviously cannot be reached with these attitudes.

In production and even more in development, Mexican workers and engineers

need extensive training to be able to work in the structures of multinational car

manufacturers. Safety, quality and productivity have to be internalized;

management and production techniques have to be learned. Working in a team,

taking individual responsibility, minding the long-term view and respecting

deadlines have to be trained.

This is of course an adaptation of the Mexican worker or engineer towards the

foreign culture. If it would not be much more efficient to adapt management and

production systems to the culture of engineers and workers is still to clarify.



Table 4.9: Summary of Cultural Criteria (/CiaF-04; HofG-83/)

Cultural criteria Mexico Germany

Language Offical language Spanish German

Religion Roman Catholics 89 % 34 % Protestants 6 % 34 % Muslims . 3.7 % Others or none 5 % 28.3 %

Hofstede’s Culture Model High vs. Low Power Distance 81 35 Individualism vs. Collectivism 30 67 Strong vs. Weak Uncertainty Avoidance 82 65 Masculinity vs. Femininity 69 66



4.7 Summary of Localization Influence Factors

A summery of all localization influence factors and their impacts is presented in

Table 4.10.

Table 4.10: Summary of Localization Influence Factors

Category Criteria Impacts

GEOGRAPHY

Climate

- Temperature - Humidity - Global Radiation

- Cooling System - Electric Power Supply - Steering Gear Oil - Measures against snow blockage - Coolant and Washer Fluid - Tires - Air Conditioning - Engine Control - Starting System - Cables and Wires - Plastic Parts - Painting, Rubber seals

Topography - Air density - Inclinations

- Engine’s performance - Use of turbocharger - Rear gear ratio - Engine control

Infrastructure - Road Conditions - Maximum Speed

- Underbody Protection - Reinforcement of shock absorbers - Ground Clearance - Tires - Aerodynamic Parts - Good drag coefficient - Brakes

Traffic conditions - Left or Right Hand Traffic - Traffic Density - Available Space

- Arrangement of drivers workplace - Headlight alignment - Exterior Mirrors - Door Lock - Car size




LEGISLATION

Environmental Legislation

- Exhaust Emissions - Evaporative Emissions - CO2 Emissions - Fuel Consumption - Noise Emissions - Test Cycle

- Engine-application - Catalytic converter - Lambda Sensors - Onboard diagnostic system - Secondary air pump - Exhaust gas recirculation system - Onboard Refuelling Vapour Recovery

Safety Regulation - Official Directives and

Regulations - Crash-Test Procedures

- Chassis stability - Airbags + Antilock Braking Systems - Lightning - Brakes - Steering - Use of Material (e.g. durability) - Glass - …

TECHNOLOGY

Gasoline Quality

- Energy content - Octane rating - Lead concentration - Sulphur concentration - Alcohol concentration - Availabilty

- Compression rate - 3-way catalytic converters - Particle Filters - DeNOX SCR Catalytic Converters - Tank - Emissions

Frequency Ranges and Multimedia Devices

- Frequency regulations - Multimedia Specifications - Availability

- Remote door lock systems (transmitter and receiver)

- Radio - Mobile telephone - DVD-Player - GPS Satellite Navigation

Material Regulations and Availability

- Prevalent Material Definitions

- SAE and DIN norms - Prohibition Laws - Availability of raw material

- Use of material - Change of parts or modules - Need for additional testing and liberation

procedures

ECONOMY

Average Income - GNI per capita - Affordable retail price

Currency risks - Exchange rate - Sales and Revenues - Import/Export quote




- Use of local suppliers

Labour Cost and Productivity

- Labour Cost - Cars per employee

- Automation Grade - Production Volumes - Margins, Revenue

Automobile Running Costs

- Fuel price - Cost of Car ownership

- Fuel consumption - Engine performance - Car size - Emission certification

SOCIO-POLITICS

Demography - Family size - Size of car

Personal Safety - Crime rates - Accidents

- Protection devices

CULTURE

Language - Mother tongue

- Instruments - Instructions - Speech control - Warning signs

Religion - Confession - Customers preferences - Work ethics

Corporate Culture - Hofstede classification

- Team work - Development processes - Production processes - Manufacturing systems - Quality systems



5 LOCALIZATION OF PRODUCTS

As shown in chapter 4, there are many factors, which oblige the automobile

industry to localize their products. Localization on first sight is just an obligation,

which causes extra costs for manufacturers, when exporting to foreign countries.

In fact, most automobile manufacturers focus on fulfilling the local legislation and

standards. This so-called homologation aims at obtaining the necessary

certificates at preferably low costs.

Localization, however, is far more complex. There are many advantages, which

can be reached by adapting the product to local circumstances. Sales and

revenues increase, when products fulfil customers’ preferences more accurately.

On the other hand, localization provokes additional costs in production, distribution

and marketing of the product. Especially in production, e.g. through the loss of

economies of scale, higher costs in comparison to standardized global products

are to be compensated.

In this chapter, a general classification of product localization will be made.

Advantages and disadvantages of localization will be discussed.

5.1 Localization Types

The localization influence factors found in chapter 4 can explain the necessity to

localize products to its market. Whether the adaptation of the product to some of

these factors is mandatory, to others it is not. It is therefore important to distinguish

between obligatory and discretionary localization. (/TerV-00/, p. 96)



Figure 5.1: Obligatory and Discretionary Localization Influence Factors

5.1.1 Obligatory Localization

Factors, which make it necessary to localize a product to a specific foreign market,

are geographical factors, like climate, but also technological norms and standards.

Differences in voltage or in the metric system are common adaptation needs. The

most important and obvious need for product localization of course are different

government regulations in foreign markets. /TerV-00/

Governmental regulations and norms are often increasing with time, like emission

regulations, resistance of bumpers or the type of airbags for automobiles.

5.1.2 Discretionary Localization

The discretionary localization seems more interesting; although it is more

complicated, because the parameters are not clearly available, like in the case of

• Demography

• Education

• Governmental Policies

• Personal Safety

Cultural

Legal Geographical

Economical

Socio-Political

Technological

• Environmental Legislation

• Security Laws

• Local-Content

• Traffic-Laws

• Climate

• Topography

• Infrastructure

• Traffic

• Language

• Beliefs

• Traditions

• Habits

• Values

• Technical norms and standards

• Gasoline quality

• Available materials

• Fuel price

• Poverty rate

• Average income

• Labour costs

Obligatory

Factors: • Immediate

Impact on Technology

• Must be accomplished

Discretionary

Factors: • Secondary

impact on Technology

• Should be accomplished

Important Localization

Influence Factors



obligatory localization, where technical requirements of governmental regulations

are well defined.

Income levels, different customer preferences, different cultural value systems and

the level of education and technical abilities may differ from country to country.

/TerV-00/

5.2 Economic Impacts of Localization

For automobile manufacturers there are many reasons not to localize their

products. Higher developing and manufacturing costs for product adaptations can

be avoided by standardized products. On the other hand, localized products better

fulfil the specific market demands, and therefore are more competitive. “When

introducing products in international markets, weighing the benefits of

standardizing products across country markets versus adapting them to the

differences among markets is often a significant concern to multinational

companies” (/SubM-04/, p. 172).

To be successful, the localized product must lead to sufficient incremental

revenues, e.g. through increased sales due to their higher competitiveness, to

compensate the higher costs for developing, manufacturing and marketing that

result from adaptations. /CalR-04/ Advantages and disadvantages of localization

are discussed in this chapter.

5.2.1 Localization Advantages

When evaluating the advantages of localization, the differences between

obligatory and discretionary localization (see chapter 5.1) have to be considered.

When there is no other way as to adapt the product to the local requirements, for

example to fulfil local legislation or to ensure basic functions, the advantage of

product localization is simply the possibility to enter the market.



Voluntary adaptation aims at a better-adapted product, which is able to increase

market acceptance and customer satisfaction. Localized products will better fulfil

the customers’ preferences and will add additional value to the product because of

its increased usability in foreign circumstances. A localized product will have a

competitive advantage in the market and thus, generating higher margins and/or

more sales and revenues as a non-adapted product.

In today’s automobile industry, fulfilling the environmental and safety legislations is

mandatory. However, as cars normally are designed for the United States, Europe

or Japan, they all from the beginning do fulfil high standards. In the case of

developing countries like Mexico, where environmental and safety legislations are

not demanding, non-localized cars would often over-fulfil these regulations. In this

case, high-elaborated technology can to be taken out of the car or substituted with

more economic solutions. The resulting cost savings can be used to improve the

market position of the car through lowering its retail price or to realize higher

margins.

5.2.2 Localization Disadvantages

Even with flexible manufacturing systems, rapid prototyping, just-in-time and just-

in-sequence methods, the costs of offering localized products in various markets is

higher than offering a global product to multiple markets. In development,

additional effort is necessary to localize the product. In manufacturing, there are

disadvantages if it is not possible to use same raw materials, same machines,

same tools and the same processes. In both, development and production, the

cost of increasing variety (e.g. complexity costs) due to localization has to be

considered. Standardized products can lower costs through economies of scale,

which can be lost due to localization.



5.3 Localization of Premium and Economic Cars

There are differences between the localization of premium and economic cars. It

seems that up-market car producers make relatively few changes to their

products, whereas economic cars have to be localized in more aspects to be

successful in foreign markets. This chapter will highlight the differences between

localization of premium and economic cars.

Premium-cars have to be localized to fulfil obligatory localization. Legal

requirements, technical standards have to be fully accomplished; geographical

circumstances have to be considered. Safety standards such as lightning

regulations have to be fulfilled completely. Because premium cars are built to

compete at least in one of the most demanding markets such as United States,

Europe or Japan, they normally do over-fulfil legal requirements when exported to

Mexico. Technical and geographical circumstances, like fuel quality or climate,

have to be considered as well in premium cars. For example, their high-developed

state-of-the-art engines often have to be modified or be changed for an older

model to cope with bad fuel qualities. Bad road conditions afford underbody

protection, regardless of the type of car.



Table 5.1: Localization of Premium and Economic Cars

Localization Premium Economic

Legal

- All requirements have to be fulfilled

- “Over-fulfilment” of requirements is acceptable and often expected by the client

- All requirements have to be fulfilled

- Through preventing “over-fulfilment” of legislation, a lower retail price can be realized

Geographical

- Premium cars have to be adapted because of sensible technology

- Premium cars have to be adapted to external circumstances (road conditions)

- Economic cars have to be adapted to external circumstances (road conditions)

Technological

- Low Production Volumes - Global suppliers are used - Electronic equipment has to be

localized

- High production volumes - Local suppliers are used

Economical - Retail price is not a critical purchase criteria

- Income levels are very important

- Adaptation of the car to ensure competitive retail price is crucial for market success

Socio-Political - none - none

Cultural - Global brand image overrides

local customer preferences - Luxury is global

- Local culture is important - Adaptation can generate

additional value for the customer

A very important fact is the difference between production volumes of economic

and premium cars. When European cars over-fulfil standards, they may be made

more competitive in taking out non-obligatory parts like additional safety features

or emission control systems. The costs of changing a high volume model are

comparable to the costs of changing a low volume car. But savings will be in direct

relation to the number of cars produced. This is even more essential, as a

competitive retail price is mandatory in the economic segment, whereas in

premium cars, retail price is no crucial purchase criteria.



Culture distinguishes between economic and premium cars. Premium car brands

already reached a global identification with their products due to their strength and

international success through the image, quality and performance of their

products. Moreover, car users would be upset, if global luxury car brands change

their cars. They do buy for example a “German sports car”, and therefore do not

accept differences. Luxury has become global. Only, “if for example a BMW of the

7-series is marketed in a country, where the owner of this prestige product usually

is being driven and sitting in the back, far-reaching changes in interior decoration

and equipment become necessary. Of course, the operation of media, air

condition and heating, windows, etc. primarily has to be organised “from the back”

/RauF-02/



5.4 Localization in the Product Development Process

Products are normally developed with a strong focus on their target market. A

systematic approach to integrate localization in the product development process

is not used in the automobile industry. In fact, localization is done in various stages

of the product development process, by different groups with different goals.

5.4.1 Product Development Process in the Automobile Industry

In the automobile industry, product development is highly time-critical and very

complex. A car is normally designed for use in a specific country, or region.

However, all future export destinations and their regulations have to be considered

from the beginning. In car development, always a car equipped with all imaginable

extras is the base model for all calculations.

Figure 5.2: Product Development Process

First localization is done after the start of production (SOP), where adaptations,

necessary for a specific market entry (ME) are made. Normally, the best-equipped

calculation model will be adapted to the local market in taking out all technology

that is considered not useful. Other possibilities for localization are model changes

and product cost optimizations. A car model is changed a few times in his life cycle

to remain attractive. The exterior design and the basic equipment package will be

changed. It is also an opportunity to localize the car. Product cost optimization is

responsible to reduce the cost of the product throughout its life cycle. In this

PD PE SOP PS

Development of

Concept

Proof of Concept

Development and Preparation

of Serie

Serie

ME Serie



optimization cycles, as well country specific solutions are considered. It is another

way of localization.

5.4.2 Cultural Neutral Products

Another way of product development is proposed by Rauner (/RauF-02/). Here,

first a product, which is as culturally and technically neutral as possible, has to be

developed. This can be called “internationalization”, in this context it is the

opposite and forerunner of localization. An internationalized, and therefore cultural

neutral product, can then easily be localized for a specific culture and

circumstances. “This reduces the time and resources required for the localisation

process, saving producers’ money and improving their time-to-market abroad.”

/RauF-02/

Actually, localization was first introduced in the information technology sector. The

need for software localization, a product with very high user interaction, always

was obvious. For example, the text processor software Word: Here, the

localization process is 20 times more costly than the development of the actual

programme. /RauF-02/

Culturally neutral products (CNP) are not ready-for-use goods. They are basic

technologies or basic products /RauF-02/. The core technology is kept neutral, so

in order to apply a product for a certain market additional region-specific

technology or adaptations have to be made.

This is a considerable difference to the common development process in the

automobile industry. It will be subject of discussion, if a culturally centred approach

could lead to a less complex process, able to cope better with the goal of localized

products.



6 LOCALIZATION IMPACT ON PRODUCTION PROCESSES

Localization and customization have similar impacts on production processes.

They both need high flexibility in production processes. They will cause a great

number of variants and therefore increasing complexity. Global platform

standardization, modularization and component re-use across multiple platforms

will be critical to be able to produce with high efficiency.

6.1 Mass-Customization and Build-to-Order

Mass-Customization and Build-to-Order are similar to localization. These

strategies aim to adapt a car to the needs of one person, while localization aims to

adapt a car to the needs of one market.

6.1.1 Build-to-Order

Build-to-order is defined as building a car according to the customer’s

specifications while there is a definitive order in place. Demanding customers, e.g.

with their desire for more individuality, and the hard competition in the automobile

industry have let manufacturers to consider implementing build-to-order models.

Many automotive companies have ambitions adapting the Dell Computer’s quick-

to-market strategy, aiming for a delivery time of less than 14 days.

Build-to-order is not a new concept. In the United States, about 7 percent of cars

ordered are custom-made. In Europe, about 19 percent and in Germany even

about 60 percent (even if not always customized) are build-to-order cars /BearP-

03/.

To achieve benefits of mass production and in order to offer individual specification

possibilities without giving up the goal of a rapid delivery time, it is necessary to

leave customized pieces to the end of the assembly process. For example,



standard engines whose performance characteristics can be determined in the

final assembly line through changes of the engine control module’s software.

6.1.2 Mass Customization

Mass customization is defined as “producing goods and services to meet individual

customer's needs with near mass production efficiency” /Tsen-01/. It makes use of

flexible computer-aided manufacturing systems to produce custom output,

reaching low unit costs of mass production processes with the flexibility of

individual customization.

It seems logical that high-end premium cars with be provided with high levels of

customizations, whereas lower-end economic cars are only given low levels of

customization. While hundreds of configuration options may make sense for

premium cars, that may not be the case on economic compact cars. It is always a

trade-off between flexibility (i.e., many variants) and efficiency (standardization).

Every level of customization works with a build-to-order model.

But, with this strategy, cars will essentially need to be built modular, parts have to

be easily interchangeable.

If mass customization and build-to-order work, build-to-order models across

automakers seem possible, and one is able to order a BMW engine in a Peugeot

body. This sounds far-fetched today, but at the maker’s discretion, it is already

happening.



6.1.3 Differentiation of Localization and Customization

Customization and build-to-order are dominating strategic discussions about the

future of the automobile industry. But even implemented completely, there will be a

need for localization. Customers like to have the possibility to choose their engine,

exterior and interior colours, and comfort and safety equipment. In the future, they

might want to choose even more other technical details, e.g. the supplier of the

car’s suspension. Even customized parameters of programmable features of a car

seem possible.

Adaptation reason Adaptation type

Adaptations made to all cars to fit specific market conditions:

• Legislation• Geography• Culture• Economy• Socio-Politics• Technology



Adaptations made to only one car to fit individual client expectations:

• Taste• Preferences• Desired utilization



Non-visible adaptations

• Exhaust system• Motor torque and

clutch adjustments



clutch adjustments

Visible adaptations

• Country special equipment packages (e.g. cup holder, Airbags, Loudspeakers)

Visible adaptations


Unique equipment

• Comfort equipment• Colour combination• Leather seats

Unique equipment


Loca

lizat

ion

Cus

tom

izat

ion

Adaptation reason Adaptation type











clutch adjustments



clutch adjustments

Visible adaptations


Visible adaptations


Unique equipment


Unique equipment


Loca

lizat

ion

Cus

tom

izat

ion

Figure 6.1: Differentiation of Localization and Customization

However, many adaptations are not relevant and not visible to the client. In this

case, the car still must be localized. Even more when the customer is not willing to

learn about technology features, or when technology is very complex, or, like in



the case of exhaust aftertreatment devices, when there is adaptation need, but no

possibility to choose for the customer due to legislation.

6.2 Modularization and Platform Strategies

A module can be defined as a component assembly, representing a functional and

logical entity, which – for that reason – can be replaced completely as a whole.

Modularization is understood as the process to combine component assemblies,

system components and individual parts into one module. For example, typical

modules in a car are front ends, driver’s cockpits, roof linings and door modules.

Possible strategic goals can be the enhancement of product quality through one

quality-responsible module (or system-) supplier, higher efficiency through

simplification of assembly operations, higher functionality through integration of

single parts and –functions, higher productivity through reduction of development

and coordination time through shifting system responsibility to the module

(system-) supplier. /TUM-04/



7 PRODUCT LOCALIZATION STRATEGY IN THE MEXICAN AUTOMOBILE INDUSTRY

In this chapter, important strategic considerations in respect to globalization and

localization are made.

7.1 Global and Local Business Strategy

Automobile manufacturers have to choose between various strategic options. A

global strategy seems very interesting in terms of cost leadership. With a global

strategy, it is possible to exploit economies of scale through global volume. As the

volume of production increases, the cost of producing each unit decreases.

Production could make use of lower costs of available resources (Labour,

Materials, etc.) in different parts of the world. A real global strategy would lead to a

identical car offered worldwide. As shown in this thesis, due to many region-

specific influence factors, this is not possible. The automobile is a very complex

product, which has to fulfil very different demands worldwide. A global strategy

seems not feasibly.



Figure 7.1: Localization vs. Globalization advantages /PortM-87/

A multinational strategy would offer localized products for every target region or

even country. These products could meet the local demands and circumstances.

They may be able to generate a competitive advantage and therefore higher

margins in local market through better adapted products. However, the realization

of economies of scale, which was a important advantage of the global strategy,

would not be possible.

It is obvious that neither a pure global nor a pure multinational strategy would work

in the automobile industry. A combination of the two extremes, a glocale strategy,

can unite advantages of both. Global production can ensure ecnomies of scale,

and through platform strategies and modularization the necessary flexibility for

Global

Globalized Production

Global products

Glocal

Globalized production Localized products

Multinational

Local production Localized products

International

Local production Global products

low

low

high

high Localization advantages

Globalization advantages

Global Strategy Matrix



localized products is provided. Localized products would be able to compete with

a reasonable price and exact fulfilling of customers requirements.

7.2 Global and Local Design Strategies

In the past, carmakers often adopted their designs, which had been successfully

and reached already the end of their life cycle in developed countries, to emerging

markets. Nowadays, because of increased competition, customers will not accept

old-fashioned designs any longer. Therefore, the big automobile manufacturers

are going to introduce more and more the same designs as in their home markets

/KniP-02/.

This enables them enjoy economies of scale and therefore reduced costs.

However, this practice has some disadvantages as well. As stated in this thesis,

the direct transfer of design can lead to over-engineered and too sophisticated

cars for developing markets like Mexico, which are too expensive for local

customers. Adaptations in order to reduce the price to the customer may be

necessary.



Figure 7.2: Global vs. Local Design (/KniP-02/, p. 120)

Secondly, the direct transfer of German models to developing countries does not

always match local market conditions. Geographic influence factors have to be

considered. As seen in chapter 4, German car models require for example

underbody protection and modifications to the suspension. (Geographic influence

factors) The demands and preferences of customers in developing countries are

different as well. (Cultural influence factors) Finally, local material and production

characteristics can make it necessary to adapt car production and design.

However, design adaptations are costly and time intensive. Economies of scale

and reduced costs through introducing the same model will diminish significantly.

Knittig, Shimizu and Ballon [KniP-02] have proposed four different design

strategies for carmakers in developing countries.

Global car design by using new platform

+ Savings in development cost

- Over-specification - High price

Local car design by using new platform

+ Savings in development costs if

original and derivative project overlaps - Otherwise increased development

costs due to market adaptations

Local car design by using a matured platform

+ Cost savings due to transfer of tools

and production equipment + High development capability if

matured platform is adapted to local needs

Global car design by using matured platform

+ Savings in development costs and

production equipment + Simple design and easy production

handling - Design is old and not attractive

Global Design Local Design

IIVII

III

New Platform

Matured Platform



Therefore, carmakers in developed markets have carefully to determine which

strategy would work best for the market in question.

7.3 Global and Local Production Strategy

As seen beforehand, the localization of products is a question of production

processes. The right production strategy will be able to provide sufficient flexibility

for both, localization and customization, with the greatest amount of

standardization, in order to realize economies of scale.

Figure 7.3: Production Strategy Matrix

Platform strategies and modularization are important to provide localized and

customized products, as they ensure standardized global parts, but at the same

time provide the possibility to easy adapt the car to local circumstances. The future

Localized/ Customized Production

Glocal Strategy

?

Global Production

Mass Production

Platform strategy

Mass Customization

Build-to-order

Modularization



in automobile manufacturing will be dominated by mass customization and built-to-

order models. New highly flexible production processes are necessary.

7.4 Competitive Advantage through Localization

Through the exact fulfilment of localization influence factors, competitive

advantages can be reached. In the Mexican market, cars tent to over-fulfil legal

requirements, as Mexican legislation concerning exhaust emissions and safety are

not very strict. Here exists a potential to realize economic advantages through

adaptation of the car.

Figure 7.4: Fulfilment of Localization Factors

Geographical influence factors are fulfilled, but there still exist potential to exceed.

Underbody protections (chapter 4.1) for example are very important in the Mexico

market, but still not all cars provide this indispensable feature.

Obligatory Localization

Factors

Possibility to realize economic advantages

Possibility to better fulfil customers expectations

100 %

Discretionary

Localization

Legal

Technical

Cultural

Socio-Political

Economical

Geographical

Exemplary draft

Fulfilment



In fulfilling socio-political, economical and cultural factors in a more appropriate

way, a more competitive product can be offered. Particularly in Mexico for

example, personal safety is very important (see chapter 4.5.3) and available

measures are not provided by car manufacturers.



8 CONCLUDING REMARKS

A short summary of the presented investigation results will be given and a

conclusion will be drawn. Additionally, an outlook about future development of

localization in the automobile industry will be given. Further investigation needs will

be mentioned.

8.1 Conclusion

In this thesis, it was able to show the necessity of localization. With the

comparison of the two very different car markets Mexico and Germany, it was

possible to extract all important localization influence factors. Additionally, the

impacts of these factors on car design and production have been analyzed.

The investigation could extract different types of localization. Advantages and

disadvantages of localization were explained. Impacts of localization on product

development and production processes have been analyzed. The interdependency

with mass customization and build-to-order models has been assessed.

The main strategic options for car manufacturers concerning their business,

design and production strategy have been analyzed.

8.2 Outlook

Localization will remain an important issue for the automobile industry. Common

test procedures and certification requirements of evaporative and exhaust

emissions, as well as safety standards, could greatly reduce the development and

certification test costs and therefore help to avoid non-value-adding localization to

different legal environments.

Voluntary localization could greatly improve competitiveness of a car in foreign

markets, without offering high-level customization possibilities. This would help to



stay in control of the rising number of variants and the resulting high complexity.

As the globalization process goes on, the importance of localization will rise

accordingly.

Further investigation efforts should include a more detailed study on the impacts of

localization on complexity in production processes.

9 Bibliography 127


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