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Germany is located in central Europe made up of the North German Plain, the central German uplands and the southern German highlands. Its neighbors include Denmark to the north, Poland and Czech to the east, Austria and Switzerland to the south, France and Luxembourg to the southwest, and Belgium and the Netherlands to the northwest. It covers the area of 357,021 square kilometers. It is the seventh largest country in Europe and 62nd largest in the world. Its climate is moderate and generally has no long periods of cold or hot weather. Its origin dates back to the second century, where the Celts were the first inhabitants then followed by the German tribes by the end of the second century. It is one of the economic powers with many industries including steel industries and automobile manufacturing. Its population in 2013 was approximately 80.399 million people, and is projected to be 71.992 by the year 2050. It forms the most populous country in the European Union (World Population Statistics, 2013).

Germany is the third largest manufacturing country for automobiles. The industry dates back to late 1880s. It is a host of many car manufacturers including the prestigious brands, such as Audi, BMW, Mercedes, Porsche, and Volkswagen. The brands are accepted and popular all over the world, because of their innovation and quality. For many decades, the automobile industry has been a key sector in the economy of Germany. It significantly affects the national growth and employment rates. It contributes a major percentage of the countries GDP, more than 20%. Its center is located in Baden-Wurttemberg. The industry consists of a small number of global lead manufacturers with a large number of family-owned small and medium suppliers of highly engineered parts, the industry accounted for 2500 enterprises. It represents about 44% of the European Union total workforce. The high demand of the automobiles in Germany and other European countries made the industry successful and established the image of producing high quality vehicles. The major market for products from the industry is the European Union. Due to competition from other manufacturers, it has diversified globally (Robert, Sebastian & William, 2011).The sector remains the countrys most important economic sector. It is the single largest automotive market in Europe. It is one of the largest employers in Germany, with workforce of approximately 723,000 employees distributed in every part of the sector. It produces about 20% of the countrys GDP. It also creates the employment indirectly in other parts of the world that deal with products, such as marketing and transport. The sector has also raised Germanys reputation as one of the most developed countries globally. The society benefits in the ways such as provision of financial support to the community projects and development of infrastructure like sports centers. It also benefits the scientists in funding their researches, especially in automobile engineering (Robert et al., 2011).

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This sector has made many developments since its inception in the 19th century. It has improved technologically. It has also diversified its market to many parts of the world. Currently, the industry produces about 6 million vehicles every year. The sector has invested billions of money in automotive research and development. This aims at creating new environmentally friendly technologies. The industry has optimized new conventional drive technologies and also developed new modes of driving. This makes the German automotive industry one of the most innovative auto sectors in the world. The sector also has added value to its products due to the market demand, such as low carbon dioxide producing vehicles. Another development yet to be achieved is the investment into the development of electric vehicles (OECD, 2011).

Strategy evaluation

Economies of scale production

Economies of scale result in low prices and, therefore, a high market share. Economies of scale lead firms to specialize in narrow product lines. Germanys economic strength has been based on car production to a great extent. The automobile industry is one of the dominating sectors, because many economic activities rely on and are linked to automobile production. The automobile industry also involves a large number of product groups, such as the production of trucks, buses, trailers, containers, parts, and spare parts. The reason as to why the strategy was used is because the customers were willing to pay for the cost of product differentiation and innovation, which increased with a rising income (Stephan, 2007).


Diversification refers to a technique used in risk management that mixes a wide variety of investments within a portfolio. Diversification smoothes out the risk events in a portfolio, so that the desirable performance of some investments will neutralize the undesirable performance of others. The German automobile industry started diversification of sales market at an early stage not only as a result of the current economic crisis in many western countries, but also as a market share gain attempt (Robert et al., 2011).

Use and development of technology

Technology refers to the use of the scientific knowledge in solving practical problems in the industry and commerce. It dwells in the art, science, specific methods, materials, and devices use to solve problems. Technology involves invention and innovation of the new products that are efficient when used. The strategy was used by the automobile companies when it faced a challenge from the environmentalists. The earlier vehicles produced a lot of carbon dioxide. Therefore, the companies invented vehicles that produce less carbon, but that are still effective. Competition from other manufacturers also prompted adoption of the new technology to produce high quality and luxurious vehicles to outdo the competitors (OECD, 2011).

Stakeholders relationship analysis

The government should consider the interests of the automobile industry, while formulating policy in the relevant areas, which include planning for transport, for example, construction of roads, employment, and deregulation of buses. In some instances, there is a scope for intra-sector disputes and intra-governmental disputes, as the various interests interact in the policy development process. The government has influenced the automotive firms to embrace the high levels of technology through formulating policies, which sees to it that the level of exhaust fumes released to the atmosphere are minimized; hence, reducing the dangers posed to the human lives (Robert et al., 2011).

In an attempt to attract new customers, increase brand loyalty, minimize cost, make it efficient, and maintain a comparative advantage, the equipment manufacturers are turning more aggressive, as they face an increasingly complex competition, which characterizes the automotive industry. The customers have perfect information on the quality of the automotive unit they would want to purchase; hence, the manufacturers have to collect more data. This way, they can effectively keep track of the offers to the customers they want to target (William, 2010).

In order for the automotive industry to compete successfully in the international market, there has to be an enhancement in the efficiency quality of operations and relationship in the place of work. There is a need for broadly-based skills to operate the technology among the workforce in the industry. This has led traditional blurring of distinction between various hierarchies and functions between employees and management. The new competitive strategies among the successful companies are built upon the employment relations (William, 2010).

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Investors in the automotive industry enter the market when they expect high returns from their investments. Basing on this, when there are a lot of returns in the market, many investors would want to enter. However, there are those investors, who are already well-established and enjoy the economies of scale, because even if they charge low prices for their products at the expense of those, who enter the market for the first time, they do not incur any cost for the purchase of capital goods; hence, if at all they have to do is incur losses, they are still at minimal. Again, some investors diversify their products; hence, making them unique from the rest, when the new products reach the market, so many customers are attracted to them; therefore, the returns from the same are expected to rise (Stephan, 2007).

Automotive firms develop technological, production, and market alliances in order to acquire knowledge that has to be integrated into the final products or processes. A firms performance is positively correlated to the technological alliances; therefore, technological partnership is an effective means to get access to the external knowledge that firms probably internalize, and upon which the firm builds internal competence. Through the use of technology in the automotive firms, the level of pollution has been reduced at all cost due to the fact that technology keeps on improving. When the level of technology improves, the amount of waste products released into the environment reduces. Notwithstanding, the final products produced, as a result of high levels of technology, fetch a lot of income for the firm, which can be used by it to improve the facilities around it. This serves to improve the standard of living (Robert et al., 2011).

Stakeholder impact table analysis

(Impact on)

Strategy(i) Economies of scale production

Strategy(ii) Diversification

Strategy (iii) using or developing new technology


Results in low market prices

Leads to a variety of products

The final products are desirable


The level of production increases

It leads to specialization by different employees

Leads to division of labor


Results in large numbers of more or less the same products

Leads to the desirable performance in terms of products

Results in high quality products


Reduction in unit cost

Results in specialization of work

Reduction of pollution and high quality goods production


It leads to finer products as a means of reducing competition in the market

Leads to improved competence within the sector

Its a means of external knowledge


Firms specialize in narrow product lines

Introduction of new and quality products

Strive to embrace the latest technology in the market


It results in high market share

The investors get to explore different investment opportunities

Results in high quality products

The strategies impacted more on alliances, because it leads to finer products, as different firms come up with different ideas, which are merged together in order to produce a desirable product in the market; hence, facing little competition, as compared to that of other firms. This acts as a form of getting the necessary information required; hence, increasing the competence of the personnel in the firm. The company will be better placed after using these strategies, because it has the necessary information about the market, the reaction of the potential buyers on the ground, and, therefore, will produce their products according to the demand (William, 2010).

Economies of scale discourage new firms from entering the market, because the already established firms enjoy their monopolies, as a result of this, new and more improved quality products do not have their way to the market. With an increased level of technology in the different countries venturing into the automotive industry, there would be a reduced level of economies of scale in Germany; hence, giving it a stiff competition for its automobile products (Stephan, 2007).


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Diversification by the firms both internally and externally has increased the profits of the firms. This occurs because diversification increases the range of the sector investment opportunities. It enables companies to take advantage of more profitable opportunities in the sector. The improved automobile technology has enabled the firms to manufacture highly valued vehicles. The vehicles do not cause pollution to the environment as before. The efficiency has also improved. This has enabled companies to make large sales; therefore, increasing their profit margins. They have also increased their long-term profitability by taking advantage of their position in the market. They form the largest companies and long-established, hence, determine the prices in the market. They have the advantage over other recently created firms in terms of volume production; therefore, they make large sales, which increases their profits (Robert et al., 2011).

Through the strategies, the firms have realized great economic growth. The use and development of technology has enabled production of quality vehicles that demand high prices in the market. The firms also have the advantage over other small firms in terms of scale of production and marketing; hence, they make larger returns. Diversification of the companies activities to many promising regions makes them increase their profit margins. Increased sales fetch high returns. All these have increased the economic growth of the industry since their adoption about five years ago. The strategies form a basis of vibrant economic growth in the future (William, 2010).

The strategies have also created new business activities of the companies and the whole sector. The introduction of the new technology has enabled the emergence of subsidiary firms that manufacture parts of vehicles. This has enabled companies to venture into the business opportunity. Diversification of the firms activities to other parts of the world has increased the business activities of the companies. The increased diversification has enabled the large firms to buy other small firms, which, in turn, increases their scope of their business activities. Economies of scale production increases the business activities of the sector. The large production requires activities such as improved and diversified marketing strategies. It has forced the companies to open markets in many parts of the world. It has also ventured in online marketing (Stephan, 2007).

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The interesting lessons learnt from this paper include information on the reasons why the automobile industry in Germany has successfully developed since its inception. The sector almost controls the automobile activities in the whole Europe. Many countries of the European Union depend on the sector for quality vehicles. Another lesson learnt is that most of the prestigious and expensive cars originate from the German automobile sector. The automobile industry has invested billions of money in the research for environmentally friendly vehicles with high efficiency. The industry also currently conducts researches to invent electric vehicles. The stakeholders of the project believe to have the results by the year 2020. Another important lesson is that the German automobile industry is the third largest one in the world.

The roles the three strategies have in the automobile sector include increasing the market share, improving the quality of the vehicles, and expanding the business activities of the companies in the sector and increasing their long-term economic growth. Diversification has a role of increasing the market share and the volume of sales. Venturing into other parts of the world creates a large market for the sectors products. The large market enables the firms to produce and distribute vehicles in large quantities. Use and development of technology has a role of producing environmentally-friendly vehicles. The vehicles produce less carbon into the environment. Adoption of the new technology also enables production of efficient and luxurious vehicles. Economies of scale make the companies use their advantage to expand. Technology also enables the firms to conform to the standards set by environmentalists and government policies on the environmental degradation.

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